Currency News: UK daily forex news

Sterling Range-bound as Euro Weakens

Luke Trevail — Wed, 09 Mar 2011 10:38:47 +0000

The pound has had a mixed trading session over the last 24 hours closing yesterday relatively stable against the basket of major currencies following a poor showing earlier in the day.

RICS house price balance improved and the British Retail Consortium showed that shop inflation indicators accelerated. It’s likely that this data and the upcoming trade numbers will provide little meaningful change in direction as sterling traders have one eye firmly on tomorrow’s Bank of England Monetary Policy Committee announcement regarding interest rates.

The recently bullish euro has been quashed today as continued fears over the European debt crisis weigh in with uncertainty resurfacing over countries like Portugal and Spain, and their ability to keep up with the more buoyant countries.

The pound was steady against the dollar remained above the $1.6150 price. Dollar markets were generally firmer in yesterday’s trading, however if oil prices continue to ease it is likely the USD will stage a come back from its recent lows.

Against the higher-yielding currencies sterling continues to move upward but will its resolve will be tested later with the Royal Bank of New Zealand set to meet and announce its next wave of interest rates.

Forecasts by the central bank itself as well as Prime Minister Key’s vague request for a cut have fed market-based speculation for this particular meeting. Ahead of the decision (due at 20:00 GMT), the market is pricing in a 124 percent probability of a 25 basis point (bps) rate cut. That means a quarter-percent reduction is fully priced in and there is speculation of a 50 bps cut. The outlook from economists is even more contentious with a near equal mix of speculation for no change, a quarter-percent cut and a half-percent cut.

More on the Bank of England and Bank of New Zealand’s two key announcements will be reported on tomorrow.

Sterling falls as ECB Rate Hike Threatened

Luke Trevail — Fri, 04 Mar 2011 09:59:27 +0000

GBP

The pound has suffered heavily yesterday as expectations for an early UK rate rise were scaled back after a below-forecast purchasing managers’ survey on the key UK services sector.

Markets are pricing in a 25 basis point hike from the record low 0.5% in June or July, with potential for a further two hikes potentially by the end of the year. This new market prediction could mean that the expected change in policy for May now looks unlikely.

Analysts are continuing to remain worried by the fragile economy and concerns about the vulnerability of the UK as the government embarks on harsh austerity measures that could see disposable incomes squeezed by higher taxes and commodity prices, which are likely not to be offset by higher wages.

Bank of England Deputy Governor Charles Bean hurt sterling yesterday after comments stating that inflation in 2011 may be above the BoE’s current forecasts but that did not mean rates should rise faster than markets expect. He also said that a rate rise before the summer months looked unlikely.

The worries about the fragile economy were compounded yesterday on the release of a disappointing services PMI for February, with the data raising many questions as to how strong the rebound in the economy really will be in Q1. Unsurprisingly, the pound eased back from the 13 months high versus the US Dollar and to a 2 month low against the ever-strong euro as we stare a double dip recession in the face.

EUR

In contrast to the pound the European Central Bank President Jean-Claude Trichet was in an extremely hawkish mood in his post meeting press conference, after keeping the base rate at a fixed 1%.

A 25 basis point increase now looks likely next month in response to rising inflationary pressures. The ECB statement said that “strong vigilance” is warranted to contain upside risk to price stability.

Strong vigilance was the phrase typically used by the ECB one month before it raised rates during the last rate move between 2005-07.

Trichet indicated that rate hike is possible next month, but ruled out that this is may start a series of rate hikes. A ‘suck it and see’ approach if you like.

The ECB has certainly ramped up the inflation rhetoric over the past month, with several warnings from council members about the need to contain rising price pressures.

Markets are now pricing in the rate increase next month and the euro is benefitting, by testing a near 2 month high against the pound and getting close to breaking the $1.40 level versus the dollar.

USD

The Greenback has been battered this week by the unrest in the Middle East and the impact on commodity prices. It has struggled to hold into its safe haven status also.

Some respite may be sought today however, as its near-term direction hinges on the US non-farm payrolls data due later on Friday. Analysts in a Reuters poll expect the report to show a rise of 185’000, following a tepid 36’000 increase previously.

Markets will be looking for a better than expected figure, but a disappointing number could fan worries about the outlook for the US labour market, especially given uncertainty about how the recent surge in oil prices may affect the US economy and companies.

Asian stocks are heading for their biggest weekly gain in nearly 3 months on bargain-hunting after their recent drop while the euro perked up after the central bank signalled a rate hike as early as next month.

Overnight gains brought stock to near levels since the Libyan crisis erupted; indicating markets have been largely resilient to oil’s 15% surge in the past 2 weeks.

Sterling poised for further gains

Luke Trevail — Wed, 02 Mar 2011 09:50:51 +0000

Sterling has tackled the week positively thus far and remains steady against the euro and dollar, helped largely by strong manufacturing data which helped push the pound to a 13-month high against the dollar.

Risk appetite was quashed by a pullback in global stock markets among stubbornly high oil prices and continued unrest in Libya, but sterling remained supported.

Markets may struggle to hold on to the risk aversion view however with the strong manufacturing data in the UK and Europe playing its part. We’d expect the dollar to weaken against a basket of currencies over the coming days.

It wasn’t all good news for Sterling however as Bank of Enland Governor Mervyn King dented Uk interest rate expectations yesterday and stated that it would be self-defeating to raise interest rates as a gesture or a signal.

Market watchers are still hoping for a rate hike by the middle of this year to counter persistent inflation and King, bearing in mind that he is one of nine policy makers on the MPC may be outvoted if the majority vote for a rate hike before May.

The UK construction PMI for February is due at 09.30 today and economists are looking for a positive figure to further boost sterling.

Keep an eye on the ADP Employment figure due from the US at 13.15 which will give a good indication as to the outcome of Friday’s important Non-Farm Payrolls for February.

Euro Rate Hike, Could Happen this Week?

Luke Trevail — Mon, 28 Feb 2011 10:19:32 +0000

Good Morning.

Following on from last week, the pound has started this trading session with a difficult few hours that have weighed on sterling’s resolve to buckle under the mounting pressures that we have been experiencing, as other central banks enter the rate increase race.

Sterling’s mood was dampened by Friday’s news of a downward revision to Q4 GDP, with news of a 0.6% contraction in economic activity in the closing months on 2010, which has added further complications to the policy outlook for the Bank of England.

The pound is holding up well against the dollar as expectations that Mervyn King tomorrow will, during tomorrow’s parliamentary testimony, hint about when and not if King and the rest of the Bank of England Monetary Policy Committee will decide to raise interest rates with inflation currently twice its target level.

The euro gained heavily against the dollar going into the weekend as market traders took profits on gains seen earlier in the week, the euro regained some ground in overnight trade, holding above the $1.3759 level.

Upside however is seen as limited for now with markets cautious on the Irish general election result and ahead of Thursday’s ECB policy meeting.

Indeed the euro fell to a three week low versus the yen overnight with political turmoil in the Middle East jostling the markets and oil production, prices and distribution being a concern. The US dollar can’t even cling to its ‘safe-haven’ status as it itself is an oil producing country which leaves investors who are wanting to offload their assets being left with few options other than to flood the euro zone.

The Euro was further boosted by comments by the ECB that hinted that they too would look at opting for an interest rate hike to combat inflation, and with the ECB meeting this week to discuss rates, market watchers will be playing close attention to both the BoE and ECB to see who jumps first.

UK GDP set for release

Luke Trevail — Fri, 25 Feb 2011 09:22:01 +0000

The pound fell heavily yesterday across the board as a spike in oil prices drove investors into ‘safer’ currencies and sparked concerns about the impact on an already fragile UK economy.

Indeed sterling hit a three week low versus the euro and it may struggle to see any further gains in the short term as the potential interest hike that the Bank of England have been discussing has already been largely factored into the market.

Versus the dollar sterling remained steady, although it did lose 0.6% on the day, retreating fro Wednesday’s high of $1.6275. Stop losses are now in focus with some traders warning that a break below $1.61 could signal a drop down below the $1.6070 level.

This morning sees the release of revised Q4 GDP data, which will be important for the GDP. No upward revisions to the initial estimate of a contraction on 0.5% are anticipated, with the data likely to remind markets that the UK economy still faces many challenges.

The US dollar has lost its some of its grip as being a safe haven as investors sought comfort in other currencies on fears that the unrest in Libya will spread to other oil producers.

Oil hit over a 2 year high on Thursday before retreating sharply following a rumour that Col. Gaddafi had been assassinated. Some help for the greenback could come from Saudi Arabia’s assurances that it can counter Libyan oil supply disruption, so respite may be seen following the Dollar hovering close to record lows versus the Swiss Franc.

Away from swings in risk sentiment focus the euro extended gains versus the US dollar to hit a session high in mid-morning trading on Thursday on expectations that interest rates in the euro zone will rise earlier than those in the United States.

Markets moved to the lowest level so far this month to $1.3822 after ECBN bank official Axel Weber’s commented that there is only one way fro interest rates to go and that’s north.

Focus will fall on the US this afternoon with revised Q4 GDP data due for release. Markets are anticipating a slight upwards revision to the first estimate of annualised growth of 3.2%.

The Euro was one of the best performing currencies on the markets yesterday as it gained from both risk sentiment and positive fundamentals, with a hefty wedge of rumour doing its best to bolster the so far this month shaky looking single currency.

Despite its ongoing debt crisis, which is likely to come back into focus again at some point, the euro is quickly emerging as a safe have for investors along side the US Dollar and Swiss Franc during time of risk aversion.

With the US Dollar likely to suffer from disruptions in Libya having an affect on other oil producers, the euro seemed a good option for harbouring money, which assisted the euro in making 3 week highs against both the pound and near one month highs against the dollar.

The Euro’s gains versus the dollar hit a session high in mid-morning trading yesterday on expectations that interest rates in the single currency zone will rise earlier than those in the US.

European Central Bank official Axel Weber said there’s only one way for the interest rates to go and that’s north.

The ECB meets next week and while no official rate changes are expected, the markets are starting to believe it will at least sound a more cautious tone with regard to inflation. Markets will be watching this morning’s release of German provisional CPI data for February, as well as January’s euro zone M3 report for any clues.

Japan’s deflation eased to the slowest pace in nearly 20 months last month as increases in global energy demand and food prices prompted companies to pass the costs onto shoppers.

It seems however that the Japanese economy will struggle this year to escape deflation as consumer prices are likely to be revises downward later in the year when the government conducts a review of its data to reflect current costs.

The Bank of Japan last month raised its core consumer price forecast for next fiscal year to 0.3% from a previous estimate of a 0.1% rise.

Japan’s central bank has pledged to keep the key interest rate between 0% and 0.1% until it van expect stable price gains which board member see at about 1%.

With Japan seeming losing some its safe have status with the Swiss Franc, US Dollar and to a lesser extent the Euro now taking the mantle, it could continue to be a difficult next few months for the yen.

Sterling Up as Euro and Dollar Fail to Impress

Luke Trevail — Fri, 18 Feb 2011 12:00:19 +0000

The pound has started its day well after yesterday’s comments from MPC member Andrew Sentance talked up sterling when he made reference that supported a rate hike, which would assist sterling as inflation needs to be offset.

There was robust economic data also, with British Factory orders improving more than expected in February and firms expected to put up prices at their fastest pace in 21/” years, the CBIs monthly industrial trends survey showed on Thursday.

The pound had weakened by around 2 cents from the high on Wednesday as the Bank of England’s inflation report downgraded the 2011 growth forecasts as Mervyn King took a less hawkish tone than the market had been anticipating.

Sentance has been GBP sellers’ main man over the last few months as he has been calling for a rate hike since 2010 and said the central bank’s latest economic forecasts underestimate upside risks to inflation, and interest rates need to rise faster that markets expect to bring it back to target.

Implied rates, based on interest rate futures and swaps, are pricing in a quarter percentage point rate hike in June (rather than May) and another in October.

Sentance claims that raising interest rates now would be a rise in the value of the pound. This should help offset the rising costs of imported commodities, which have helped in driving inflation to double the BoE’s 2% target.

The US Dollar Market was relatively quiet overnight after the dollar had come under some pressure yesterday on the fall in US Treasury yields.

The surprisingly large increase in initial jobless claims signalled wages were unlikely to pick up any time soon, reducing expectations of a rate hike by the Fed this year.

This coupled with benign inflation data in the US reinforced expectations that the FED will leave interest rates on hold for some time yet. Frustratingly for watchers the market appeared to shrug off a much better than expected Philly Fed Index.

Indeed the dollar couldn’t even play its safe-haven card as the Greenback was generally out of favour, the continuing Middle East tensions saw strong demand yesterday for non dollar safe haven currencies. Notably, the Swiss franc rallied strongly, once again providing to be a major beneficiary on increased geopolitical risk

Federal Reserve chief, Ben Bernanke will be speaking in Paris at 13.00 (UK) today ahead of the G20 meeting of finance ministers and central bankers on Friday and Saturday.

Traders however, are not expecting much from the meeting form a currency market point of view.

It has been reported that Germany will support Portugal if it faces difficulty in funding itself in financial markets, although Finance Minister Wolfgang Schaeuble did say that it is not in a state of emergency…yet?

Schaeuble commented in an interview with the Nikkei that Germany would remain amenable to further aid for debt-laden euro-zone members provided they agreed to structural reforms such as cutting public pensions.

Portugal has thus far managed to fund itself but the cost of borrowing is now close to or at record highs and is becoming increasingly punitive.

The single currency has been largely range-bound all week against a basket of currencies, as the middle-eastern problems, and the ever looming euro-debt crisis hanging over the continent seemingly not going away, it seems that the euro is ready and waiting for a change in direction.

Next week’s German IFO report should provide some insight into where the market will be moving, and will be sure to kick off a busy week on fundamentals.

Inflation data to boost Sterling?

Luke Trevail — Tue, 15 Feb 2011 08:50:59 +0000

Good Morning.

The pound remained largely unchanged through yesterday’s trading session but we may see that change today with the markets anticipating change.

The CPI data is set for release at 09.30 and interest rates or moreover the pressure to raise will no doubt be making policy makers at the Bank of England scratch their heads.

Until now the BoE has been confident price pressures would be temporary, and a shift in that view would add to expectations for a rate hike

The report is expected to show an annual CPI jumped to 4% in January, well above the 2% target set to the Central Bank from the government. Focus will then move to tomorrow’s quarterly inflation report to see whether Mervyn King and the rest will still hide behind the pretence of being able to quash inflation towards the 2% target by next year, as previously pledged.

Any change in sentiment from these two reports could open the door to a rate hike soon which will likely boost the pound.

The euro was sold heavily across the board yesterday. The single currency fell to a three-week low against the dollar as it was hit by fresh worries about Europe’s banking system, which weighed on sentiment already depressed by concerns about euro zone peripheral debt.

These worries had led investors to reign in expectations of a near-term interest rate rise by the European Central Bank.

After coming under selling pressure for most of yesterday morning, falling to a three week low of $1.3429 against the dollar, the euro did manage to regain some ground in afternoon trading.

However it did struggle to hold onto gains overnight remaining on the back foot against the dollar and sterling for now.

The euro has also been hot by this morning’s release of disappointing French GDP data for Q4. Preliminary data show growth of 0.3% over the three month period, compared to forecasts for a 0.6% rise.

Growth figures from Germany also slightly disappointed, while Portuguese date released yesterday showed a contraction in the economy.

There was disappointment after yesterday’s meeting of European finance ministers failed to outline an extension of the existing facilities. They did agree, however that a permanent rescue mechanism to be set up from 2013 would total €500 billion.

It seems that everywhere you look, the euro zone has bad news piled on top of more bad news and the market watchers among us are now waiting for the rot to start in earnest, so sellers would be well placed to get out while the going is relatively good.

Euro Falls as Bond Auction looms

Admin — Mon, 14 Feb 2011 09:44:14 +0000

Good Morning.

The euro has been in focus over the weekend, as the single currency fell to a three-week low versus the dollar on Monday as investors turned cautious ahead of peripheral bond auctions in Spain and Italy this week.

The euro fee to $1.3472 against the dollar and tested €1.19 versus sterling, down 0.5% since the close on Friday.

News that German bank WestLB was hanging in the balance and a rescue plan was being formatted has also weighed on the euro.

Although finding some support in talk that the ECB will be ahead of the Fed in terms of hikeing interest rates, markets are still acautious of the single currency given the overhang of soverign debt concerns and uncertainty about the ECB’s successions plans now that Alex Weber is no longer running for the job of president of the central bank.

Following on from Friday sterling slipped versus the broadly strong dollar. This move was after buying of the dollar driven – or more off loading of the pound – as speculation of a UK interest rate rise stalled in the absebce of clarity from the central bank on when a hike might occur.

The Bank of England kept rates on hold at 0.5% on Thursday of course and although this decision was widely expected, it prompted selling in Ster,ling by some investors who had bet on a small possibility of a rate hike.

The BoE are not set to release any details of Thursday’s policy debate and voting until later this month, analysts said the market continues to lack clarity on how close the bank really is to raising rates as inflation pressures mount.

We will have more on the Euro bail-out as and when anything happens over the course of this week.

No Change to BoE rates - Sterling Rallies

Luke Trevail — Fri, 11 Feb 2011 09:40:18 +0000

Yesterday saw the Bank of England keep interest rates on hold at 0.5%.

Although no-change had been widely expected, markets had priced in a 20% chance of a rate rise. Sterling dipped slightly after the announcement after traders cut their positions.

Despite the shock contraction in the UK at the end of last year, expectations of a rate hike have remained strong. Analysts have said that the prospect of continued sluggish growth, lower government spending and rising unemployment could heighten the BoE’s dilemma over when to tighten policy.

Data on Thursday showed British factory output fell unexpectedly in December, but a weather-related surge in energy production offset the decline, and economists hinted that they expect to see a manufacturing bounce-back in January, as order that have been backed up from the previous month are completed.

Sterling gained in the afternoon session yesterday as the market digested the central bank’s decision. The euro was placed under pressure as worries about the single currencies debt crisis and the lack of a quick solution were starting to emerge and as speculation waned that the ECB will act on interest rates anytime soon.

Therefore the BoE are still expected to raise interest rates before the European Central Bank despite yesterday’s decision, and market watchers will await the minutes of the meeting in the next two weeks to indicate how the voting went with the nine policy committee members.

The mere fact that it would seem that the Bank of England are now poised to announce when not if the interest rates will be raise is seeing a boost in the fortunes of sterling, but they will continue to play cat and mouse with the stuttering economy before injecting this apparent lifeline.

The US Dollar saw a rally against a basket of rival currencies on Thursday after a fall in US jobless claims with more gains seen against the euro on concerns about Europe’s worsening debt crisis and the apparent lack of proactive tackling of the problems by the ECB.

Traders have said that a recent spike in US yields may prompt further gains in the days ahead. This in addition to the dollar benefitting from its ever aiding safe have status has pushed the greenback higher to near one month highs versus the Swiss Franc and Japanese Yen.

Indeed The dollar’s safe haven appeal was bolstered further by renewed concerns about the level of political instability in Egypt, with calls for Egyptian President Hosni Mubarak, to step down immediately greeted with defiant refusal.

With the troubles in Egypt now seemingly getting worse it will interesting to see what effect this has on world markets, with the US Dollar most likely to benefit.

The focus of Central Bank’s actions has very much grabbed the headlines this week, and Europe are no exception.

The euro slipped against the dollar on Thursday as nagging doubts over a lack of concrete policy measure to tackle the euro zone debt crisis hit sentiment and pushed peripheral debt yields up.

The euro was slow on the uptake yesterday and lost any momentum it may have enjoyed earlier this week as the ECB ability to take concrete measures to tackle the ever increasing debt crisis was bought into question.

This issue now seems to be more important than when the European Central Bank will tackle interest rates.

The euro was down 0.6% versus the dollar at $1.6352 having resent o $1.3745 in US trade on Wednesday. Traders said Middle-Eastern accounts were buying around the day’s low of $1.3616, while key support was the 100-day moving average at $1.3541.

Implied options volatilities in the euro-dollar which is a measure on the market’s view of how much the pair will move in the future, were trading with a heavy feel.

Reports this week that the ‘Policy Hawk’ Axel Weber would not succeed Jean Claude Trichet as President of the European Central Bank, added doubts that euro zone rates would rise in the near future.

Asian stocks fell more than a percent and were on course for their biggest weekly loss in nine months as investors shunned risk on concerns about the pace of policy tightening in the region and growing tensions in Egypt.

Inflationary worries had started a broad sell off in Asia since the start of 2011, and shows no signs of stopping. Expectations of more monetary tightening have encouraged investors to shift funds from emerging markets, common in Asia and key trading partners to Japan, to markets that are more developed with the US benefitting most.

Indeed, the US Dollar hit a one-month high against the yen overnight after US job market data supported the greenback coupled with the euro falling on concerns grew about the slow pace of progress in resolving the ever increasing debt crisis.

Rate Increase Less Likely say Analysts

Luke Trevail — Thu, 10 Feb 2011 09:27:37 +0000

Good Morning.

We start the day looking ahead to the Bank of England Policy Meeting, with the market players now warning of downside as expectations of a rate hike throughout 2011 may have been overestimated.

We did see a slight increase for sterling but gains were limited as the cloud of today’s noon announcement looms ever nearer.

Chances of a rate increase were yesterday slashed to 15% from 30% at the beginning of the week, as rumours of the MPC not acting until May took over much sentiment.

This May hike has been largely priced into the market already which has led to a built-up of speculative long positions in the pound but analysts say that creates risk of downside.

Currency strategist at UBS Chris Walker commented; “Given that the market has gotten ahead of itself in terms of pricing in a rate hike, any risk for sterling is to the downside”.

Rates being kept on hold could push the pound below $1.60 against the US Dollar and towards €1.17 so caution is advised this morning for any sellers of Sterling.

Data in the UK yesterday showed Britain’s goods trade deficit hitting a record high in December as imports of aircraft jumped ahead of a change in the VAT, and bad weather caused disruption at airports and ports.

The figures seem to agree with the sharp fall in the UK GDP at the end of 2010 and may raise concern among economists that Britain’s recovery is slowing. This would feature in the decisions that the Bank of England make regarding an increase in interest rates, and likely make them cautious of acting too soon.

The euro slipped against the dollar overnight, pressured by fading prospects for a European Central Bank rate hike while a boost the previous day from falling US bond yields proved short-lived, fuelling expectations tat it will stick to its well-worn range.

I will write an update after the Bank of England noon announcement in London with the immediate market movement.

Retail Sales boosts Sterling

Admin — Tue, 08 Feb 2011 10:56:18 +0000

Sterling was steady against the dollar overnight with expectations of a UK rate hike may be needed soon to counter inflationary pressures offset by selling from Asian accounts.

Better than expected UK purchasing manager surveys in January helped to counter negative sentiment surrounding a surprise contraction in growth in the last quarter of last year.

Investors are now pricing in a rate hike as soon as May of this year to tackle stubborn inflation. Little chance of a move is expected this week when the Bank of England Policy Committee meets on Thursday but focus will then fall squarely on next week’s quarterly inflation report for any clues on when, not if the BoE will move.

House prices in England and Wales fell in January, although the pace of decline eased for a third consecutive month. The Royal Institution of Chartered Surveyors seasonally adjusted house price index rose to -31 from -39 in December, its highest level since July and far better than the consensus forecast of -38.

British Retails Sales saw a significant bounce back in January after the snow-hit December’s figures were far from supportive of the pound. The positive figure was driven by the discounts and a rush to beat the VAT sales tax rise after the New Year.

The BRC (British Retail Consortium) said that like for like sales in retail we 2.3% higher in January that a year ago, the strongest annual rate of growth since March.

These figures should lend support to UK Economic Growth, with the 0.5% contraction now thought to be a blip rather than a long term problem.

With the Bank of England dominating proceedings this week, we will have more on any rumours that come thorough as we get them.

GBP up as Focus Falls on BOE

Luke Trevail — Mon, 07 Feb 2011 10:24:05 +0000

Speculation as to when rather than if the Bank of England will raise interest rates gathered pace, and the support of investors during the early trading session this morning after a report in the Sunday Times fuelled the rumour mill.

Sterling rose against both the US Dollar and Euro, hitting a 3 week high on the latter after it was reported that a “shadow” monetary policy committee voted to lift rates.

The official decision will not be announced until Thursday and while it is widely expected to keep the bank rate unchanged at 0.5% and maintain its asset buying programme, markets are fully pricing in a rate hike by May.

Following the Sunday Times report the pound was firmly placed in the shop window, and although the shadow committee does not wield any real influence, the make up of economists from the Institute for Economic Affairs think tank has given sterling some support to start the week with.

The US Dollar rose against the euro on Friday after some better than expected Non-Farm Payrolls data. This helped push US yields and had markets pricing in a two in three chance of a US rate hike by the end of 2011, up from one in three a week ago.\r\n\r\nInvestors now look to see whether the US Dollar could extend these gains this week.

We will have more on the Bank of England as the week progresses.

Euro weak as Trichet stalls in interest rates

Admin — Fri, 04 Feb 2011 10:28:11 +0000

The pound is looking to round off the week in a much better position than many market analysts thought following from the contraction in the UK economy by 0.5% according to last week's worrying GDP data.

Activity in Britain's dominant services sector expanded at its fastest pace in eight months in January as business recovered after December's snow disruption.

Yesterday's purchasing managers' survey from Markit & CIPS also showed a record jump in input cost inflation in the services sector , which may cause concern for Bank of England policymakers who hold their rate decision meeting next Thursday.

Sterling fell away a little from the 3 month high against the dollar, bouncing off the key resistance level of 1.6282, but staying well over the $1.60 price that has proved difficult to break during sterling's turbulent trading pattern since the turn of the year.

Versus the euro however, the pound clung to comments that drove the euro down, as Jean Claude Trichet dampened expectations for a rate hike in the euro zone.

The single currency fell across the board yesterday and has started Friday's trading session with much the same bad news after European Central Bank President Jean-Claude Trichet threw cold water on expectations that euro zone interest rates would rise in the near future.

Trichet spoke after the ECB's decision to keep rates at a record low 1% and stated that inflationary expectations remain "firmly anchored" and inflationary pressures over the medium to long term "should remain contained".

Investors were clearly disappointed, as they were expecting a more hawkish statement after recent inflation data came in above forecast. It was thought that the ECB would lift interest rates sooner that the Federal Reserve and this had strengthened the euro. Yesterday's news led investors to dump the euro and buy the dollar as the game of cat and mouse gathers pace.

Fed Chairman Ben Bernanke spoke yesterday and said that despite improved US economic data, the economy needs help from the central bank.

Expectations that the recovery is taking hold pushed US 10 year Treasury yields north of 3.55%, above a range that has held solidly since mid-December. Higher bond yields will make dollar denominated assets more attractive.

Market wise, the dollar benefitted from the disappointing news out of Europe that led to rates moving down to 2 weeks lows at around $1.36, and could look to extend these gains as investors are let down by the euro-zone reluctance to entertain the idea of an increase to interest rates to combat inflation, as per Jean-Claude Trichets comments yesterday who stated that current interest rates are "appropriate".

The Japanese Yen continues to cling to the status of safe haven, as investors pull money out of the euro zone and retreat into the apparent harbour of the Yen and US Dollar.

More risk appetite should be expected with numerous central bank's discussing and considering a change t interest rates that may see investors drag their money out and seek riskier ground. On that basis, any buyers of Yen are well laced now to lock in exchange rates.

GBP up on services data

Luke Trevail — Thu, 03 Feb 2011 11:38:16 +0000

Good Morning.

We have started today with positive news from the UK as services PMI came in above expectations. This has bolstered the case for higher interest rates in the UK and has pushed the pound towards a strong resistance area of $1.6282.

Activity in Britain’s dominant services sector expanded at its fastest pace in eight months in January as business recovered after December’s snow disruption.

Sterling rose around 0.5% (70 pips) on the data to it’s highest since the Nov 5 peak of $1.63, with a break above this rate taking the market to its highest level in over 12 months.

It’s fair to bet that sterling may drift higher across the board in line with early expectations of Bank of England tightening. Resistance will play a part of course, with braking above this level proving difficult.

Dollars woes continued with the euro hovering not far below a 12-week high overnight as the market await the European Central Bank meeting and subsequent news conference, where hawkish comments could give it a further boost.

Fed Chairman Ben Bernanke will speak shortly after the ECB chief Jean Clausde Trichet and its thought that Bernanke will reaffirm the bank’s policy and is still focussed on boosting growth, which may weigh on the dollar further.

Market watchers will be looking for any hints on when the euro zone interest rates may rise, given Trichet’s recent warnings on the need to take on inflationary pressure. Accelerating inflation and funding problems for peripheral banks are set to top the agenda at the meeting.

More on this will be reported tomorrow, and no doubt the market picture will look a lot different to what we are seeing at the moment.

Interest rate rumors gather pace

Admin — Wed, 02 Feb 2011 09:57:20 +0000

Sterling rallied heavily against both the dollar and euro yesterday as expectations that the Bank of England will now start to raise interest rates by mid-2011 and the general uptick in risk appetite kept the dollar under pressure.

Implied interest rate futures based on overnight index swaps were pricing in nearly a 70% chance of a 25 basis point rate rise in May, up around 40% form last weeks predictions.

Expectations for higher UK interest rates have been set since inflation data last month overshot expectations and has fed into the pound’s rally against the dollar this year.

Sterling got a boost on Tuesday after strong manufacturing sector PMI numbers. It has also been bolstered by increasingly hawkish comments from policy makers including Andrew Sentence who said the longer the central bank delays taking action against rising inflation the bigger the threat to its credibility.

Deputy Governor Charles Bean also weighed in and was quoted as saying that the central bank would need to act on interest rates if commodity prices continue to rise and inflation becomes embedded.

The environmental impact of the floods in Australia has been well publicised throughout 2011 so far, and the Australian dollar rate has also changed in-line with the rising water, with the dollar losing nearly 10 cents since the beginning of the year.

The currency remains incredibly strong however, and many analysts are looking ahead to the tropical storm that is heading towards Queensland to see whether any weakness will come from the effects of Cyclone Yasi, with a break above $1.60 being likely.

The dollar hit 12-week lows overnight, heading toward key support versus a basket of currencies as solid manufacturing data this week, low US yields and stimulative US monetary policy pushed towards riskier assets.

Strong manufacturing numbers from America and other countries fuelled optimism on global economic growth, with expectations of loose US monetary policy further encouraging risk-taking as concerns over euro zone peripheral debt seemed to be contained for now.

GBP-USD rates peaked above $1.60 for the first time all year yesterday, and buyers of this pairing will benefit from placing stops in the market to protect against any downside.

Sterling Prepares for difficult week.

Luke Trevail — Mon, 31 Jan 2011 10:10:03 +0000

Focus for Sterling this week will be whether the pound can find some stability as concerns about a fragile UK economy as a negative technical picture weighed on sentiment against the pound last week.

Sterling steadied against the euro on Friday, but slipped back against a firmer dollar in this trade as worries over rising civil unrest in Egypt fuelled worries over Middle Eastern countries in general, prompting safe-have demand for the greenback and US Treasuries.

A limited data week for the UK may leave sterling at the mercy of others as the euro and dollar look set for positive showings this week.

Friday’s consumer confidence didn’t help the pound as the Gfk NOP survey fell 8 points in January to -29, the biggest drop since the early 1990s and the lowest reading in 22 months, hit by a rise in VAT and continued looming public spending cuts.

The euro remained steady against sterling on Friday, and the technical picture looking positive for the euro while it traded below its major daily moving averages.

Sterling looks vulnerable against the dollar also, with Phil Roberts at Barclays Capital claiming that “downside remains vulnerable”.

“A break below $1.5680 opens a test of trend line support drawn from the May lows near $1.55. A close back above $1.6060 is needed to alleviate the bearish bias.” Roberts added.

Friday’s weak consumer confidence survey further dampened speculation that persistently high inflation could force the Bank of England to change their stance on the record low interest rates and opt for an increase from the 0.5%. This it is thought will keep sterling below the $1.60 level.

Sterling found some short-lived support after minutes of the BOE’s January meeting last week after policymaker Martin Weale joined Andrew Sentence in voting for a 25 basis point rate rise, but weak data will make an early hike less likely.

Advice for any sterling sellers would no doubt be welcome, and covering at least some of any immediate requirement sooner later than later may be a consideration.

Dollar Suffers after IMF Warning

Luke Trevail — Fri, 28 Jan 2011 09:47:11 +0000

Sterling found some support yesterday, drawing from expectations that the Bank of England could raise interest rates by mid-year and underpinned by broader dollar weakness.

The pound found support after minutes of the BoE January meeting on Wednesday showed that policymaker Martin Weale joined Andrew Sentance in voting for a 25 basis point rate rise from record low 0.5%

Market analysts have commented that the additional vote to raise rates prompted investors to price in the rising likelihood of an increase in coming months.

Wishful thinking others thought, with the weakness highlighted this week indicated that the UK’s dance with a double dip recession would cap the pound’s gains.

In a Reuters report, Chris Walker currency strategist at UBS said: “The market is literally reading the minutes as hawkish, and not reading in the context of the weak GDP print.

But referring to a speech by BoE Governor Mervyn King on Tuesday Walker added: “King’s speech after the GDP print and the GDP itself suggest that the analysis of the minutes should be put into context a bit”.

The pound is at risk of being dragged lower by the threat of stagflation now being a concern. With analysts worried that stubbornly high price pressures at a time when the economy struggled to recover being a recipe of (currency) disaster.

The pound managed to claw back some of its week of declines after the dollar extended losses after US data showed a rise in the number of Americans making first-time claims for jobless benefits, suggesting continues strains in the labour market.

The US Dollar has taken notice of Japan’s problems this week (see below) and reacted yesterday to a warning from Moody’s that reminded the greenback that investors might turn negative on its US rating outlook in the next two years, given how the country’s budget deficit has continued to swell.

The US fiscal concerns may drag down the dollar after the knee jerk reaction to Japan’s downgrade fades.

As a result of the speculation the dollar weakened to a near 11 week low against a basket of currencies.

Focus for the dollar will be today’s GDP data due at 13.30, which is forecast to have grown an annualised 3.5% last quarter, up from 2.6% the previous quarter.

A strong figure should benefit the dollar, but the shock UK GDP data earlier this week will still be leaving a bitter taste in the mouths of many market watchers, so nothing is guaranteed.
The Euro benefitted yesterday by German consumer prices rising at their fastest pace since October 2008 this month data realised yesterday afternoon showed. This has offered early signs that inflation may now be high enough to be of concern to the European Central Bank, opening the door to a potential increase of interest rates?

Apart from further rises in the costs of heating oil and fuels as well as fruits and vegetables, Germany’s Federal Statistics Office commented that January’s increase was also due to a national hike in electricity bills to subsidise renewable energy producers.

The chance of one and possible two ECB interest rate hikes within months has been strengthened with this news according to a Reuters poll.

Standard & Poor’s rating agency cut Japan’s long-term sovereign debt rating for the first time since 2002.

This was followed by the United States and Japan being offered a stark warning by the IMF stating that they need to spell out plans for cutting their budget deficits before financial markets turn on them and force borrowing costs higher.

In a report of global debt and deficits, the IMF expressed concern that budget cutting in advanced economies with large debts was set to slow, and it pointed at Japan and US as the economies that are falling behind.

Overnight Japan’s Prime Minister Naoto Kan vowed to push ahead with tax reforms aimed at curbing country’s debt, but an uncooperative opposition and divisions within his own party on policy make the chances of success slim.

The USA’s outstanding public debt has swelled more than 60% of total output since the financial crisis gripped the markets, and with a record $1.5 trillion budget deficit expected this year, is set to grow further.

Japan’s woes are even deeper. Its debt has been steadily growing for years as it tried to revive the economy from a huge asset bubble burst in the 90s and outstanding longer-term government debt now stands around 18% of GDP.

Kan has made tax and social security reform, including a future rise in the 5% sales tax, a priority given the rising costs of Japan’s fast-aging society and a public debt that the biggest among advanced nations.

Full-force of UK GDP Yet to be Realised?

Luke Trevail — Wed, 26 Jan 2011 10:29:46 +0000

Sterling fell heavily, across a broad basket of currencies yesterday after one of the biggest shocks in the economic downturn crippled the pound.

The UK economy contracted by 0.5% in the final three months of last year , marking the first fall in output in output since Q3 2009.

Market that had been expecting growth of 0.4%, with the unusually bad weather held largely responsible for the contraction.

The data will increase the focus on this morning’s release of the minutes of the January Bank of England’s policy meeting. However the market appears to be already revising its interest rate expectations following the GDP release.

Sterling’s collapse versus the euro stalled somewhat because the single currency also eased back versus the dollar from two month highs seen earlier in the week.

However the Euro recovered over the course of the day, breaking through the $1.37 level versus the US Dollar overnight. The dollar has also fallen back versus the yen with markets turning their attentions towards this evening’s policy announcement from the Fed., with central bank expected to be dovish in tone.

As this article is being written, sterling has risen against the dollar and the euro, while gilt futures fell after minutes from the January meeting of the MPC showed policymakers considered a rate rise.

The minutes showed Bank of England policymaker Martin Weale unexpectedly joined Andrew Sentence in voting for a quarter-point rate rise this month.

Against the dollar, sterling rose to a session high of $1.587 after the announcement, and rose to 1.1590 versus the euro.

The weight of the negative GDP data will no doubt set the tone over the coming days, with many market analysts predicting prices below the €1.12 level and $1.50.

We will wait and see what transpires, but caution is advised for any sterling sellers.

Shock GDP Figure Shatters Sterling

Luke Trevail — Tue, 25 Jan 2011 09:58:50 +0000

This morning sees the release of the Q4 Gross Domestic Product figure from the UK and Sterling starts the day already on the back foot.

Yesterday and overnight we saw the pound fall sharply against the firm euro on an increasingly hawkish outlook for euro zone interest rates and questionable growing expectations for the UK economy undermined the sterling.

At 09.30 the GDP figure has been announced and the Pound has plunged against all of the 16 most actively traded currencies this morning, after the Office of National Statistics reported that the UK gross domestic product slumped to -0.5%. The UK economy suffered a surprise contraction in the fourth quarter, as construction and services industries declined and the winter conditions hampered consumer spending.

Economists had forecast a 0.5% gain in the final three months of 2010 but the degree of the contraction signals that the UK economy is floundering and hurtling towards a second recession. Gross domestic product is unlikely to improve in the first quarter of 2011, as the budget cuts take hold, while rising unemployment and the increase in VAT weigh heavily on consumer and business confidence.

The report this morning is catastrophic for the government, and the Pound has declined sharply following the release of the data, which will all but dispel any probability that the Bank of England will raise interest rates before the fourth quarter. Investors have already raised bets that the Pound could trade as low as 1.1370 versus the Euro and 1.47 against the U.S Dollar. To that end, Euro and Dollar buyers may wish secure an exchange rate before the Pound suffers further losses over the coming weeks.

Clearly the markets are now at risk of further losses, and we will have to wait until the end of February for the revised figure to see whether this expectations is accurate or not.

We will have more on the market movement over the coming days.

Sterling Loses Ground in Readiness for Big Week.

Luke Trevail — Mon, 24 Jan 2011 10:20:43 +0000

We begin Monday looking ahead into the week with plenty of data that should set the tone as to how the pound favours over the next five days.

Following on from last week, Sterling eased against the dollar on Monday, as traders took profits after the UK currency scaled two-months highs last week on nagging doubts about whether Britain’s interest rates are headed higher throughout 2011.

Figures from the Commodity Futures Trading Commission released late on Friday show that speculators turned long on the euro for the first time in two months in the week ending 18th January, while they doubled their bets against the dollar. With speculators no longer having short positions that need to be closed out, the euro’s upward momentum could slow.

The easing of euro zone debt worries and tough talk from European Central Bank chief Jean-Claude Trichet about keeping inflation in check supported the single currency which inched towards a three week high against the pound.

In contrast, Bank of England policymaker Adam Posen pointed to downside risks to prices on Friday, saying his view on underlying inflation was unchanged, these comments followed data that showed retail sales fell 0.8% during December, which weighed on Sterling once more.

Sterling was down against the dollar also coming into the trading week, and since being well supported since higher than forecast UK inflation data earlier this month caused investors to speculate and interest rates, but will this be enough?

The first estimate for Q4 gross domestic product data will be released on Tuesday and analysts expect growth to have slowed as the harsh winter in likely to have hurt construction and manufacturing activity.

In addition, sterling will look towards Wednesday’s minutes from the Bank of England Monetary Policy committee minutes from this month’s meeting, Hometrack House Prices fro January and CBI Distributive Trades Survey for January.

As Michael Hewson, analyst at CMC Markets states: “With public finance data also due out the same day (as Q4 GDP Data), traders will have a lot to digest in relation to the pound and its recent gains.

“It could well be an interesting week for sterling.”

Euro Strong as Sterling Slips Back

Luke Trevail — Fri, 21 Jan 2011 10:14:22 +0000

The pound has fallen back against the US Dollar and the euro after the green back rallied on strong US housing numbers and some real money accounts reallocated funds away from the pound to the single currency.

Sterling was feeling the pressure also from mixed UK industrial trends survey that highlighted the dilemma facing Bank of England policymakers.

The pound was down 0.8% against the dollar at $1.5864, off a high of $1.6010 and an eight week high of $1.6060 that was hit earlier this week. Stop losses were triggered after the move below $1.5910 and then sub $1.59.

The UK currency has been well supported since higher-than-forecast UK inflation data on Tuesday caused investors to bring forward expectations for when the BoE will hike rates, with a 25 basis point rise fully priced in by around mid-year.

Market watchers are however wary that a weak economy and harsh austerity measures to come mean a rate hike is not a done deal.

Data on Wednesday showed UK unemployment rose at its fastest pace in 8 months in November against a backdrop of weak pay growth.

AIB Group Treasury Geraldine Concagh said: “Sterling is highly volatile in relation to interest rate speculation and we could see a good deal of volatility in the next few months as it reacts to various data.”

Data of note next week will be the release of the minutes from the January Bank f England policy meeting, which will likely give an indication of how concerned policymakers are about high inflation, as well as fourth quart (2010) gross domestic product data.

The euro has extended gains against the dollar to briefly hit a fresh two month high overnight after Germany’s IFO survey showed improving business sentiment in Europe’s largest economy.

The euro rose to a high of $1.3566 after the data, from around $1.3557, before pulling back slightly.

It is still up by over 0.5% and when you consider the very difficult start to the year that the single currency has seen thus far, any positive market movement of significance is noticeable.

The dollar gained broadly on Thursday as an array of US data suggested the US economy is firmly on a path of recovery, but growing confidence in Europe’s ability to defuse its debt crisis should limit the greenback’s gains against the euro.

US Fed monetary policy largely relies on labour market conditions and the pace of economic recovery, so signs of improvement increase expectations of higher interest rates, which in turn makes the boiler more appealing to investors.

“Most of the reports today were fairly good. For anyone skeptical about the U.S. recovery, these should ease concern," said Kathy Lien, director of research at GFT Forex in New York.

"It suggests the U.S. economy is moving in the right direction and investors are buying the dollar, as there are concerns outside U.S. borders," she said. "The combination of strong U.S. and Chinese data today is something to be optimistic about."

The dollar's biggest gains were against its safe-haven rival currencies.

Higher yielding currencies were the biggest losers yesterday, as sentiment swung in favour of the US Dollar.

The Australian Dollar, which fell 1.3% against the US Dollar, is particularly sensitive to the performance of the Chinese economy as Australia is a major supplier of natural resources to China. Continued speculation of higher Chinese rates tends to weaken the Aussie as such action would cool growth, decreasing demand for resources.

A Reuters report this week suggested that Asia’s rapid economic growth will moderate slightly in 2011 even as policymakers combat rising prices with higher interest rates and try and keep local currencies from appreciating too sharply.

Most of the 13 Asia-Pacific economies in a Reuters survey are expected to see growth cool in 2011 from 2010 as economic recoveries in the United States and Europe remain uneven and China steps up its effort to fight inflation and asset bubbles.

Sterling's Rise loses pace

Luke Trevail — Thu, 20 Jan 2011 09:42:20 +0000

The pound lost some ground against the broadly firmer euro yesterday as the single currency was buoyed by growing hopes that the European Central Bank policymakers will be able to navigate their way through the sovereign debt crisis.

Sterling also dropped from near 2 month highs against the dollar as investors took profit on long positions.

Rising inflation and the talk of an increase in interest rates have helped to underpin the pound, but sentiment was dented by data showing the number of Britons out of work rose by its most in eight months in the 3 months to November while wage growth remained in check.

Despite the limited market movement, the claimant count in the UK fell by an unexpected 4’100 in December, while the drop in the previous month was revised to 3’200 compared to the initial estimate of 1’200. This could be attributed to the seasonal work and Christmas demand.

This suggests some improvement in the UK labour market conditions with markets predicting a rise of 1’500. However, while the number signing on did fall other data show the numbers out of work rising.

Some analysts believe that the euro is supported across the board and has been the G10 currency for the past five days. This could lead to more strength from the euro, which may mean that the near €1.20 that we nearly achieved last week may now have passed.

Data released yesterday show that the US housing market is still struggling to recover from its downturn and remains a major obstacle to overall economic recovery.

Housing starts dropped to an annual rate of 529’000 units in December, their lowest level since late 2009 Markets will be looking to today’s US Data, which include weekly jobless claims, existing home sales and the Philly Fed index for further direction.

The Australian dollar remains strong with the floods and economic impact there of being dealt with well. GBP vs. AUS has risen to above $1.60 from the New Year highs of around $1.50, we are still subject to incredibly strong higher yielding currencies, with the Canadian Dollar, New Zealand Dollar, South African Rand and Australian Dollar all up against a basket of currencies. A pattern that looks set to continue.

Sterling near 8-week high vs Dollar

Luke Trevail — Wed, 19 Jan 2011 10:29:47 +0000

Sterling rose against a subdued US Dollar on Wednesday, trading close to an eight-week high on the back of growing expectations of higher interest rates and steady buying by Asian central banks.

The pound has now gained nearly 2% in January as investors continue to price in expectations that the UK interest rates will rise before those in the euro-zone.

Inflation prices being again higher than expected in the UK yesterday added to the speculation that it may be a case of when and not if the Bank of England announce a change to the 0.5% interest rate that we have seen in the UK for the last 22 months.

The pound continued to improve against the US Dollar also, trading at a high of $1.6058 in the overnight and volatile session.

It has come back a little early this morning but many analysts are citing continued strength for the pound with $1.61 being possible.

Commerzbank have supported many market watchers’ opinions, “Inflation has worsened so that it will become increasingly difficult medium term for the Bank of England to resist a rate rise”, they said in a morning note.

It’s worth noting that any currency that sees a spike upwards like the pound has seen this week could be inline for a correction before marching forward again, so charts are likely to reflect a slight slump at some point soon.

The continued inflated inflation could put the BOE in a difficult position however. They have been promoter of a weak pound throughout the economic downturn, and even when things started to look better they stated that by keeping interest rates low the UK remain competitive in the exports market, which would likely attract overseas investment.

Higher inflation however deepens the policy dilemma of the central bank, as a rate rise in the near term may choke off the country’s economic recovery as government austerity measures kick in this year. Some analysts argue that the BOE is unlikely to raise rates in the coming months as a result, further worsening its credibility with markets as price risk ratchet higher.

As this article is being written, British labour market data has been released and the UK Claimant count was as expected 4.5% and has done little to move the market.

Sterling’s overall outlook seems positive, with latest rates against the Danish Krone, Arab Emirate Dirham, Australian Dollar and the South African Rand touching 3 month highs.

Sterling set for 2 month highs.

Luke Trevail — Tue, 18 Jan 2011 10:01:50 +0000

Sterling has risen to an eight-week high against the US Dollar overnight, buoyed by improving UK consumer confidence and expectations that stubbornly high inflation may force a rate hike towards the middle of the year.

British consumer price inflation will be released at 9.30AM. It has reached a six-money high of 3.3% in November and is forecast to have remained at that uncomfortably high level in December, that that 1% point above the Bank of England’s target.

Sterling rose to it’s highest since late November, boosted by hedge fund and real-money demand. Technical analysts said the outlook was constructive after last week’s close above the 100 day moving average.

Sterling also moved higher against the euro overnight and looks set to see some improvement throughout the day as the €1.20 level will no-doubt be tested once more.

Yesterday’s meeting of euro finance ministers failed to give the single currency market any reassurance that there would be an increase in the size of the European Financial Stability Fund (the euro zone’s bail-out fund) which kept the euro under some downward pressure versus the other majors.

It attempted to move higher versus the dollar overnight following a pick up in risk appetite in the back of gains in global equities but upside momentum appears to be short lived.

The US Dollar fell to an eight-week low against a basket of currencies on Tuesday as the euro extended gains on reported sovereign demand and following reports that Russia may be inline to follow China and Japan and opt to buy euro zone debt.

An interesting day in store with euro and dollar weakness, but with the pound set for further gains. Sellers of sterling are well placed to take advantage of some good prices, and we will have more on any significant changes in the market over the next few hours.

Euro Dominates both GBP & USD

Luke Trevail — Fri, 14 Jan 2011 09:52:16 +0000

The euro has come back fighting in the second half of this week, which has shocked market watchers after yesterday’s solid Spanish debt auction and comments by European Central Bank President Jean-Claude Trichet that the euro zone faces short-term inflationary pressures added fuel to a short-covering rally in the euro, against most notably the pound and US Dollar.

Indeed the euro is now on track to post its best weekly performance against the dollar in 20 months all of which can be attributed to the hawkish comments by the ECB yesterday that caught markets off guard.

Hints that the ECB could lift interest rates to contain inflation, even while the bloc was tackling a debt crisis signals its intent and confidence in its own strength.

Whether this proves to be the case or not remains to be seen, but the initial reaction on the market is clearly worth taking note of as the euro strength is palpable.

The euro’s rise marked an impressive turn around from a four-month low, around $1.2871 on Monday and set the scene for a retest of the December high of $1.35. It is up around 3.5% this week. Against Sterling is a similar story with markets moving around 2.5% which has snatched the chance of many euro buyers to lock in prices at €1.20 with the market now plummeting down to €1.17.

The pound has risen to one-month high versus the dollar after Thursday’s trading session helped by a short-covering rally in the euro and expectations from some market players that a rise in UK interest rates may come sooner that expected in 2011.

The Bank of England kept to expectations and didn’t adjust their stance on the current 0.5% base rate. Rising inflationary pressures and higher UK yields have however prompted money markets to price in a strong chance of a rate hike as early as May.

Sterling vs. US Dollar now looks set to test the $1.5990 level as it did in September last year, with the opposite to be said for the euro market.

Sterling lost some ground against the euro after trading at 1.2040, it has sunk heavily as the single currency gained much needed respite from solid demand at bond auctions in Spain and Portugal, largely from Japan and China as they snap up euro debt. This together with suggestion that the European Union may take further steps to tackle sovereign debt worries in the euro zone weighed on the pound as the single currency found support

British industrial output grew in November at its slowest annual pace since July, dragged down by continued weakness in the oil and gas sector and despite strength in manufacturing official data showed yesterday.

Industrial output rose 0.4% after October’s 0.1% decline. However, that was a smaller rebound than the 0.6% analysts expected. Manufacturing output grew slightly faster than forecast, matching October’s monthly rate of 0.6^ which was the strongest since March.

The US Dollar’s significant movement yesterday came in the form of weakness against the dominant euro after the hawkish comments from ECB President Trichet, as strong demand for Spanish paper eased debt woes.

Market’s rose to a one month high and broke above its 100 day moving average.

The US will look towards a busy data day with retail sales, industrial production and CPI figures for December set to be released this afternoon to try and turn around the seemingly one-way traffic that we saw yesterday.

Bond Auction Boosts Euro

Luke Trevail — Thu, 13 Jan 2011 09:56:33 +0000

Yesterday’s strong bond auction for Portugal has calmed the markets after the promise of support that Japan and China was proven as good demand for their debt shored up the single currency.

Support for Europe through its fiscal crisis have also helped to keep the euro around $1.31 and the closeout of small bets against the euro could push it up above $1.32 in the near term, particularly as global equity markets hit two-year highs.

The euro zone’s financing troubles have generally dragged on investors’ appetite for risk taking, though signs that highly indebted European countries are able to tap capital markets albeit at high borrowing costs, may see a growth in risk appetite.

Risk seekers will normally strengthen the higher yielding currencies, so the already strong Australian Dollar, New Zealand Dollar, South African Rand and Canadian Dollar may be in for a continued spell of strength, while the safe haven of US Dollar and Japanese Yen will weaken.

Indeed the GBP-USD rate climbed yesterday to a one month high of $1.5782 as markets reacted to the bond auction, which offset the impact from data which showed Britain’s trade deficit widening to record levels.

Britains trade gap widened to £8.736 billion tiN November from an upwardly revised £8.591 billion in October. Imports of record highs in oil and the associated costs that this has in bringing in aircraft, which was needed in December, pushed the trade deficit to it’s biggest since monthly records began 20 years ago, contrasting with expectations.

Sterling fell away from the near €1.21 level overnight as the euro drew on support from a robust reponse to bond auctions from Portugal.

It may be fair to point out that investors remain bearish about the pair with the single currency likely to come under more pressure, as concerns about euro zone peripheral debt problems mount and may drive many to sell out of the euro.

Today is the monthly meeting of both the European Central Bank and Bank of England, wit the rise in inflation likely to dominate the Monetary Policy Committee meeting.

The BOE interest rate announcement will be at 12.00 with little chance of a rate increase, this may not happen now until at least August this year.

We will have more on the Central Banks’ decisions later today.

Portugal Bonds Auction in Focus

Luke Trevail — Wed, 12 Jan 2011 10:05:12 +0000

The risk of Portugal following the lead of Greece and Ireland has been the cause of much speculation for the last week, with today being the day when they will likely decide whether to follow the lead of other nations and approach the EU and IMF and ask for a bail-out.

Portugal will go to the markets for up to €1.25 billion with a sale of four and 10 year bonds. The auction will be closely watched as an indication of investor confidence, as markets see how easily, or not the debt hit nation can raise funds.

There has been plenty of speculation that Portugal could join Greece and the Irish Republic in needing an international bail-out, something it has denied. The mear threat of this has been the driving force behind the mass euro weakness that we have seen since the beginning of the year and traders are eagerly awaiting today’s news to see what direction the euro market takes.

This could of course benefit any Sterling sellers who are looking to take advantage of some prices that have not been available since the summer last year. And we will have more on this as we get it.

Yesterday saw the pound rally across the board, despite some disappointing retial sales figures that posted a decline in sales in the month of December, attributed mainly to the poor weather over the Christmas period and the concerns of consumers regarding the increase of VAT.

The dollar was down against sterling by 0.2% on the day to $1.5649 with stop orders cited above the $1.5660 and $1.57 which will signal a reversal in the market and may suggest rates will head for the September high of $1.60+.

The euro debt crisis has dominated the market news of late and will continue to do so. But the euro has found support after Japan said that it will purchase wuro zone bonds to bolster confidence in the European Financial Stability Facility, but in yesterday’s volatile session momentum faded after Tokyo said it would use existing euro reserves to pay for the debt.

Tokyo's pledge came after China assured Spain it would invest in the indebted euro zone state's bonds -- an assurance whose impact also proved fleeting.

Italy and Spain are due to tap the bond market on Thursday, in auctions that will be watched for any sign of contagion, and possibly test the resolve of the Asian’s apparent support.

The dollar yesterday rose by 0.6% to 83.22 versus the Yen as recent optimism about the US economy helped lift bond yields.

The Swiss franc extended Monday’s sell-off amid growing concern about the impact of the record strong franc on the domestic economy.

Sterling looks to gain further

Luke Trevail — Tue, 11 Jan 2011 10:11:55 +0000

The pound moved up to a near four-month high versus the struggling euro overnight as sovereign funding worries continued to undermine the single currency, with market watchers saying that sterling could be poised for more gains.

The euro remained on the back foot with the focus on whether Portugal will be able to raise the funds in the debt market on Wednesday or be forced to turn to the European Union and IMF for financial aid.

Bond auctions in Spain and Italy will also be closely scrutinised this Thursday, as last week’s auction in Portugal was the catalyst behind this current move.

Sterling was trading up at a high of 1.2069, but closed down on the day yesterday as the euro came under broad selling pressure, but has come down a little following some overnight data in the UK.

Technical analysis also showing further room for the downside for the euro, with Commerzbank analysts highlighting potential for a move to the June 2010 high of €1.2350 being seen.

Sterling was steady for Sterling vs US Dollar yesterday, at around $1.555 in the middle of the trading session, firmly in the middle of the range of $1.5345 - $1.5680 that was set in December.

Data overnight revealed that British retail sales fell in December for the first time in April 2010 as heavy snow and concerns about the economic outlook deterred consumers during the normally busy Christmas shopping period.

The British Retail Consortium said that the value of sales dipped 0.3% in December fro a year earlier on a like-for-like basis, this follows an impressive 0.7% rise in November.

In separate news over night, the British Chambers of Commerce said a surge in demand for British exports will not be enough to stop British economic growth slowing sharply in the fourth quarter of 2010 and the first three months of this year.

The BCC, which represents firms employing around one in six UK workers, reported strong manufacturing growth but weak performance from the much larger services sector in the last three months of 2010 in its quarterly economic survey.

The remainder of the week will be fairly light data wise fro the UK, with the Bank of England MPC meeting being the exception on Thursday. Focus will fall on the European situation to establish where this market will go and as always, we will keep you updated.

Euro weakness could set the tone

Admin — Mon, 10 Jan 2011 11:43:25 +0000

Markets have started the week some what slower than how they finished after last week amazingly erratic showing.

On Friday, despite the disappointing non-farm payrolls report, the payroll rose by 103’000 compared to expectations for a rise of 175’000, the dollar remained to dominate the euro as despite the report it was supported by the news that the unemployment rate fell to 9.4% from 9.8% in November, its lowest level since May 2009.

Any near term impact on US monetary policy following these figures is unlikely, and over the weekend Fed chairman Ben Bernanke warned that there is increased evidence of a self sustained recovery, the current rate of job creation was insufficient and a “considerable time” will be needed to right the jobs market.

Currency forecaster's will be looking to the week’s round of US Data for further direction, the most important will be Friday’s retail sales report for December, though inflation, industrial production and weekly jobless claims will also be watched closely.

Early trading this morning saw the euro touching a four month low versus the dollar and the lowest against the pound since September last year as concerns over eurozone sovereign debts were once again in the limelight.

Risk that Portugal is under pressure to accept aid from the EU and IMF, as Ireland had last year is also weighing on the pressure, which undermines the single currency and could continue to do so as the week goes on.

European currencies such as Norwegian Krone, Swedish Krona, Polish Zlotty and Hungarian Forint have all suffered from the downturn in the eurozone, as further risks over some member states weighs on European sentiment.

The ECB meets this week with no change to official rates expected, market watchers will as always look very closely to the post meeting press conference which may set the tone as to how the ‘experts’ see the current situation.

An insight into the reason behind the sudden up tick in eurozone inflation will be looked for.

Sterling will be looking towards the Bank of England for some direction also, as the Monetary Policy Committee meet to discuss interest rates. No change is expected so more fundamental data such as industrial production, consumer confidence and housing market reports should set the tone for the pound.

Markets await US Employment Figures

Luke Trevail — Fri, 07 Jan 2011 09:36:10 +0000

Focus today falls firmly on the already strong US Dollar as it is expected that the US employment probably picked up in December which will raise the odds that we will see significant strength in the world’s largest economy throughout 2011, as the Non-Farm Payrolls is announced later today.

This follows much better than expected ADP private sector report on Wednesday which showed a big boost in employment and is a good indicator of today’s announcement.

According to a Bloomberg survey a projected 150’000 gain in payrolls would follow the 39’000 increase that we saw in November, bringing the total advance for last year to 1.1 million, a proactive signal that the economy is recovering and will continue to do so as the year progresses.

High unemployment explains why Fed policy makers said they need to follow through on their plan to purchase an additional $600 billion in Treasury securities by June this year. Could the run of positive employment figures now change the sentiment of the Fed to start looking at not only cancelling the additional $600 billion but possibly looking at an increase in interest rates, satisfying investors and testing the resolve of the beleaguered housing market.

The data will be released one hour before the Fed Chairman Ben Bernanke is scheduled to testify before the Senate Budget Committee on monetary and fiscal policy and the economic outlook.

Indications that the economy has started to improve and rising corporate earnings helped fuel gains in the stock market last year. The Standard & Poor’s 500 Index rose 13% in 2010 after a 23 & jump in 2009, making it the biggest two-year advance since the Internet-bubble rally of 1998/99.

We will have more on the 13.30PM figure later today.

In the UK, we had confusing data yesterday morning with data that should have weakened sterling. It showed that the CIPS services PMI in the UK fell sharply in December to 49.7 which was attributed to the bad weather and weak new orders. The business expectations balance however did rise and we would expect to see a bounce back in the overall index in January as the weather impacts fades.

Construction PMI also fell back below the key 50 level in December, again weather conditions played their part in the move.

Overall the average lies well above 50 at 53.3 due to a strong rebound in the manufacturing index in Q4. This headline index is being boosted by sharp gains in the output, new orders and job creation components of the survey, with the rise in exports orders suggesting that manufacturers are benefiting from a renewed pick-up in global demand.

The CBI export orders balance also bounced higher in November and December, suggesting further that the traded sector could lend its support to Q4 GDP, possibly being one factor which could assist the continued, albeit slow, economic recovery in the UK.

Figures did little to dampen Sterling’s positive movement yesterday and the pound gained against most major currencies other than the consistently strong US Dollar, gaining most against the euro peaking above 1.19 from a low point of this week at 1.1520.

The euro sovereign debt crisis has been the focus of much of this week, with the single currency suffering against a host of nations with euro-zone unemployment and final Q4 GDP set to be released today, things may get slightly worse.

The region has received some welcome support however as China’s Central Bank Deputy Governor Yi Gang stating:

“The euro and the European financial market are an important part of the global financial system and were, are and will be one of the most important areas for China’s foreign-exchange reserves”

China’s support didn’t stop there however as Vice Premier Li Keqiang this week expressed confidence in Spain’s financial markets and pledging more purchases of that nation’s debt.

It’s worth noting that Australia’s economy has seemingly avoided recession and continues to grow during these difficult times with some analysts attributing it’s success to the fact that Australia are firmly under the wing of the Chinese and an important trading partner. If China gets in to bed with Europe, could the same situation develop?

Market wise, the single currency touched a three-month low against the US Dollar before Italy, Portugal and Spain sell bonds next week. It also fell to 0.8403 against GB Pounds.

Borrowing costs for Portugal surged at a six-month bill sale this week, the first of Europe’s high-deficit nations to test investor demand in 2011 after the threat of default forced Greece and Ireland to seek bailouts last year. Spain and Italy together need to raise 317 billion euros this year, according to BNP Paribas SA.

Portugal, which intends to sell as much as 20 billion euros in bonds to finance its budget and redemptions this year, sold 500 million euros of bills with a yield of 3.686 percent on Jan. 5, up from 2.045 percent at a sale of similar-maturity securities in September.

The yen fell to a two-week low against the dollar before a US report today that is expected to show an increase in jobs for a third month supporting demand for assets in the world’s largest economy.

This apparent swelling of the US economy has boosted Japanese stocks boosting index to its best first week in 15 years, as carmakers rose on speculation U.S demand will expand and employment will improve in the world’s largest economy.

The Topix and Nikkei 225 yesterday both closed at their highest levels since May, with gains of about 15% in a rally that began November 1st. Stocks in the Topix were valued at 15.9 times estimated earnings on average at yesterday’s close, compared with 13.5 times for the Standard & Poor’s 500 Index and 11.1 times for the Stoxx Europe 600 Index.

Data Released Friday 7th January:

EU 10.00 Unemployment
EU 10.00 Final GDP (Q3)
GER 11.00 Industrial Production
US 13.30 Non-Farm Payrolls
US 20.00 Consumer Credit

UK suffers loss after good start to 2011

Admin — Thu, 06 Jan 2011 09:53:42 +0000

Eurozone sovereign debt continues to give markets cause for concern with confidence remaining shaky as the New Year begins to take shape.

The euro remains under pressure versus other majors, drifting lower against the US Dollar and Sterling through yesterday’s trading session and overnight. Falling to a low of $1.3127, with GBP-EUR rates peaking at 1.1853 already today, the single currency will be further hampered by the dollar having fresh evidence that the US economic recovery is gathering momentum.

Yesterday we saw better than expected non-manufacturing (services) ISM from last month, as well as a strong ADP employment report. The news of this near 300’000 gain in the private sector payroll last month bodes well for tomorrow’s release of the official non-farm payrolls report for December.

Indeed the dollar now has some reason to feel confident of making further gains if fundamentals over the next few days are supportive of the recovery. We may have an insight today about tomorrow’s non-farm report as the weekly jobless claims figures are announced.

A reduction in claims signifies lower unemployment which will strengthen the dollar.

Sterling continues to suffer from a mixed bag of trading sessions against both the dollar and euro as we suffered from the broad USD rally and benefitted from the break in euro sentiment.

As I write, the UK CIPS services PMI for December, which will be watched closely for an indication about the pace of recovery, has been released. The figure is worse than expected, 49.7 compared to 53 which is the worse figure since April 2009.

Pessimists now question whether another recession is possible as it will affect UK GDP by 0.3% and hinder growth on an already shaky economy massively.

More on this will follow as news unfolds.

The higher yielding currencies, New Zealand Dollar, Australian Dollar, South African Rand and Canadian Dollar are still out performing most major currencies as the risk sensitive basket swells once again. Sellers of these currencies are seeing some of the best rates in nearly 30 years versus the pound.

Sterling continues to move higher

Luke Trevail — Wed, 05 Jan 2011 09:34:07 +0000

Sterling rounded off a good day yesterday with relatively muted overnight session, in preparation for a rare quiet data release day in the UK today.

Data released yesterday afternoon showed that US factory orders rose unexpectedly in November, growing by their highest level for eight months. Meanwhile the minutes of the December Federal Reserve meeting show the central bank’s acknowledgement that the rebound seen in data in recent weeks could well continue, though it claims it is in no rush to change policy stance.

Commodity prices and oil fell yesterday for a second day running, as prices corrected after a sharp year end rally. Thos drove down commodity linked currencies like the Australian and New Zealand dollar, the former coming off a 27 year high over the Christmas period.

Sterling was one of the few currencies to rally versus the dollar yesterday, though it did struggle to hold its gain over the day.

With better than expected UK CIPS Manufacturing PMI for December Sterling was encouraged that his may be among many other data releases which supports the hope that the UK’s recovery momentum can be maintained this year.

US Data today should set the tone, and markets will shift attention to the release of the US non-manufacturing ISM survey for December, as well as last month’s ADP employment report, which should provide a direction ahead of the release of Friday’s official payrolls data.

Poland’s Zloty has started the year well advancing to its strongest position against a basket of currencies in 2 months as central bank Governor Marek Belka was reported as saying that policy makers should raise interest rates.

The Japanese Yen fell victim to the Nikkei Stock Average decline being dragged down by the banks. Yesterday’s volatile trading session saw stocks change directions more than 110 times with the suggestion that the US will lead a global economic recovery and oil producers fell on lower crude prices.

Sterling positive after troubled Christmas

Luke Trevail — Tue, 04 Jan 2011 15:53:01 +0000

The Pound has performed very well today following stronger than expected UK manufacturing data for the last quarter of 2010. This is welcome news for anyone looking to convert sterling into other currencies, following the pound’s weakness over the Christmas period.

December’s Purchasing Managers Index (PMI), a monthly gauge of manufacturing output, hit a 16 year high reaching 58.3, up from 57.5 in November. Any number above 50 is considered to be good. Manufacturing output was at its highest since May, export orders increased rapidly and employment was just slightly down from the record set in November.

As any major economy recovers from a recession, manufacturing should be one of the first sectors to benefit. As a weak Pound makes exports appear more competitive and high unemployment puts a downward pressure on wages.

Strong manufacturing suggests that the UK will recover from her recent recession and the economy will be able to withstand public sector spending cuts and tax increases, with VAT rising to 20% today.

"The PMI numbers are a very positive surprise which shows that the manufacturing sector is still going great guns and not showing any visible signs of disruption by the snow over the month," said Philip Shaw at Investec.

Over on the continent, the Euro has also risen against many currencies. This is due to stronger than expected inflation data. The European Consumer Price Index (CPI) came in at 2.2% in December, above the expected 2% and also up from November’s 1.9%. Central banks look to increase interest rates when inflation is high, which increases demand for that currency.

This explains the Euros rise against the US Dollar and other major currencies.

In other news the Australian Dollar is under pressure, as traders cited concerns about the massive floods in the country’s North West. The Australian economy is heavily reliant on commodity exports and the floods have hit a major exporting area of the country.
According to Reuters the flood ‘has severed roads and closed ports, curtailing production of coal, Australia's top export’. As well as having a major human cost, this has the potential to have a noticeable economic impact.

Sterling set for a good week

Luke Trevail — Mon, 13 Dec 2010 11:07:45 +0000

Over the weekend Sterling dipped from the highs of late last week under pressure from by a weak UK house price survey that once again highlighted the fragility of the once booming property sector.

Prices for homes in England and Wales fell 3% in the past month according to property website Rightmove, citing economic uncertainty and low mortgage approvals and forecasting bigger falls throughout the next year.

This could be a massive negative regarding in the recovery of the UK economy over the coming year as housing prices is seen as one of the major driving forces of the British financial state.

Bond in the US continue to rise, enhancing the appeal of the dollar, following a proposal to extend Bush-era tax cuts that is seen boosting growth as well as the fiscal deficits.

The Federal Reserve meets on Tuesday with officials expected to assess the central bank’s second round of quantitative easing announced in November against the back drop of tax plans.

Tomorrow’s meeting will provide Fed officials with the opportunity to discuss the impact of its second round of quantitative easing announced in November. However, despite some recent better than expected data, the central bank is not expected to signal policy shift, particularly in light of November’s disappointing non-farm payrolls unemployment report.

Euro continues to have a difficult time of things and has started the week down at $1.32 versus the US Dollar, pressured by market concerns ahead of an EU Summit later in the week.

Heads of State meet on Thursday & Friday and traders will be waiting for any updates in terms of permanent mechanisms that are to replace the current EFSF and EFSM programmes.

Over the weekend Germany & France rejected calls for increases in the rescue funds and joint sovereign bonds or E-bonds but agreed to better align their task and labour policies.

More on the Euro debt situation will be announced throughout the week with some financial ministers calling for an increase in the figure that is made available for ailing countries if and when they need it.

The pound faces a busy data schedule this wee that includes the release of CPU, retail sales and unemployment reports for November, with the CBI distributive trades report for December is also due for release. All releases are set to be positive for the UK and we will wait and see what moves we see in the market that could enable GBP-EUR to break the heavily resilient level of €1.20.

Euro Banking set for Changes

Luke Trevail — Fri, 10 Dec 2010 12:38:43 +0000

Sterling fell back versus the dollar early yesterday, tracking the euro lower after the rating’s agency Fitch downgraded Ireland’s sovereign rating, we have seen the pound recover slightly over the night trading session and start well today. Trading for GBP – EUR meanwhile has been confined to tight trading ranges over the past 24 hours reaching €1.1963 high and 1.1901 low overnight.

We have seen a relatively muted response to the news that the Bank of England chose to leave interest rates on hold for a record 20 months in a row. This was much in line with expectations and we wait the minutes of the meeting later this month to see whether the sentiment from policy makers focuses on further cash stimulus.

The UK’s global goods trade deficit widened unexpectedly in October as imports soared to a record high, driven by purchases of chemicals from several European countries, data from the Office for National Statistics showed yesterday. The goods trade deficit grew to £8.5 billion from a revised £8.4b in September.

UK goods exports rose 4.1% from September to £23.1 billion, the highest level since May 2006, driven by an increase in overseas oil sales.

The Euro fell sharply versus the dollar following the downgrade from Fitch. This coupled with comments from the Irish Labour Party which claimed that it would vote against the legislation for the IMF/EU rescue package that goes before the Dail next Wednesday weighed on sentiment heavily.

We have seen a slight rebound overnight though, with the euro pushing towards $1.33, however fears about further problems in relation to the euro zone’s fiscal crisis which encompasses Greece, Spain, Portugal and Belgium are limiting any positive moves. Irish fundamentals have suggested some slightly better news with unemployment seemingly falling from its peak of 13.7% in July to 13.2% in November, small but good news for the Irish.

News that shouldn’t surprise is that European regulators are set to reveal new restrictions on the bonuses that banks can pay their staff. The limits are expected to be finalised today by the Committee of European Banking Supervisors (CEBS), although an announcement may not come until Monday.

The rules are likely to be much tougher than those agreed by the G20 countries, raising fears that bankers may emigrate to more lightly regulated countries. It is thought the bonus limits will apply to European bank staff globally. However, non-European banks will probably only face restrictions on what they pay staff working for subsidiaries based in the European Economic Area.

European shares rose for the fifth session on Friday, with BMW gaining following a positive broker note, while banks slipped after Standard Chartered was hit by a Bank of America Merrill Lynch downgrade.

However, gains were limited as investors remained cautious ahead of Saturday's Chinese November CPI figures, with analysts concerned a high reading could prompt the central bank to raise interest rates.

The euro was steady against the dollar on Friday, staying soft on concerns over the sovereign debt crisis in the euro zone while talk of the possibility of more monetary tightening in China dampened appetite for risk. Strong Chinese export and import figures helped commodity-linked currencies like the Australian dollar a little, but gains were limited as the better data also increased the risk of an interest rate hike.
"The euro has held up surprisingly well given the poor news coming out of Europe. Without further momentum in bad news we are likely to see more consolidation," said Carl Hammer, currency strategist at SEB in Stockholm.

He added that a rate hike in China would be negative for risk appetite, but probably only in the short term as a strong Chinese economy is still a positive for global growth.
The dollar .DXY index, which tracks the greenback's performance against a basket of major currencies, was little changed at 79.99, struggling to break through the 80.00-81.50 barrier that capped its November rally. The dollar's 14-day, 21-day and 90-day moving averages as well as the ichimoku tenkan line are all clustered around 83.40-60, making the area a strong support level.

But the greenback's repeated failure since late last month to take out resistance around 84.40 is encouraging many traders to take profits near that level, leading to expectations that its 83.50-84.50 range will persist for now.

Japanese stocks fell on Friday after a rise to a seven-month high earlier in the day prompted profit taking, although they outperformed the rest of Asia this week, while U.S. Treasuries steadied on the view yields had risen too high, too quickly.

European shares rose for the fifth straight session, with the FTSEurofirst 300 up 0.2 percent and London's FTSE 100 0.3 percent firmer. U.S. stock index futures SPc1 were up 0.2 percent.
With 2010 almost over, investors were reluctant to throw much money into any single trade now that a big selloff in Treasuries had died down and opted instead to take profits on small positions in thin trading volumes.

Whether China would raise interest rates this year, perhaps even this weekend, was on investor radar screens as they assess risk taking, especially after a state-run newspaper said inflation may have hit 5.1 percent in November.

Bank of England to Decide on Rates

Admin — Thu, 09 Dec 2010 11:14:02 +0000

With the Bank of England meeting later Governor Mervyn King may oversee another stalemate today as faster inflation and conflicting economic signals continue the trend of a three-way split on his Monetary Policy Committee over the need for more stimulus.
The nine-member panel will probably keep the size of its bond-purchase plan at 200 billion pounds ($314 billion), according to all of the 34 economists in a Bloomberg News survey. All 58 economists in a separate poll predicted the benchmark interest rate will stay at 0.5 percent. The bank announces the outcome of its meeting at noon today in London.

Bank of England need to weigh up and consider whether Britain faces a greater danger from inflation or from the deepest budget cuts since World War II and Europe’s debt crisis. Policy maker Andrew Sentance voted last month to withdraw stimulus, while Adam Posen argued the economic recovery needs more aid, and the rest opted for no change.

There may be an uneasy truce as some policy makers think that things will slow down, it may not be enough to tip the hands of other policy makers. The euro crisis may allow the UK to take a back seat and consolidate over the next few months and any further stimulus it is thought won’t be considered until late 2011, by which time the Bank of England may well have started at looking at increasing interest rates.
The pound was little changed against the dollar today, trading at $1.5802 in early trading today. The yield on the 10-year U.K. government bond slipped 3 basis points to 3.519 percent

Sterling should take comfort in the fact that we have had a succession of good news about the UK economy this week, although it has lost some of yesterday morning’s good gains versus the euro falling to 1.1886 from 1.1967. Following on from Tuesday’s better than expected manufacturing report for October, the December CBI industrial trends survey showed orders at their highest level in more that two years.

Buyers of New Zealand and Australian Dollars will know that the picture has been particularly gloomy over the last 6 months or so but there may have been a glimmer of light with the statement of the reserve Bank of New Zealand being particularly dovish as it left rates on hold at 3%. This lead to the GBP-NZD price moving from around $.05 on Monday to $2.12 overnight. The Aus Dollar also weakened on the news. Be thankful for small blessings.

The US Dollars recent rally appears to have run out of steam, in tandem with a pause in the sharp uptrend in the US Treasury yields, which had been a major driver of dollar gains earlier this week. A view is emerging that the sell off in treasuries, on raised growth expectations after the deal struck between President Obama and Republicans to extend tax cuts, may have been over done.

Sterling set to strengthen?

Luke Trevail — Tue, 07 Dec 2010 10:17:14 +0000

With the Bank of England meeting on Thursday focus falls on whether we will hear any whispers surrounding the potential increase in quantitative easing where as interest rates should remain unaffected.

The pound edged higher against a weaker euro on Monday as investors focused on euro zone debt problems ahead of a meeting of European finance ministers who met last night facing pressures to increase the sixe of a €750 billion safety net for crisis-hit members with a view to halt a debt crisis in the single currency bloc.

This is followed by a meeting scheduled for today of ministers from the European Union, who are expected to formally approve the €85 billion euro aid package for Ireland and discuss the reform of EU Budget rules.

Sterling saw a 0.4% increase against the euro yesterday and the next 48 hours could be key in showing what direction we may see over the next few months and traders have already stated that the concerns over the stability of the euro zone would keep the single currency weak, which will likely benefit the pound.

This ongoing diagnosis could have been backed up by an IMF report that has been obtained by Reuters which said the euro zone should have a bigger rescue fund for member states in trouble. Germany was quick to reject such a move and dismissed calls for joint euro zone bonds.

Minutes of the last Monetary Policy Committee meeting showed that there was a three-way split in October and November, which does open the door to questions surrounding the outcome on Thursday.

"We expect the MPC to leave policy unchanged on Thursday, as we think there has been no material change in the risks to the inflation outlook that the committee has previously identified," said Simon Hayes, economist at Barclays Capital.

Australia’s central bank kept its key cash rate unchanged at 4.75% after its meeting finished overnight. The announcement was widely expected following a pre-emptive hike last month. Markets now expect the central bank to leave rates on hold for a few months to come. In making its statement, the RBA referred to the volatility in markets as a result of concerns about the creditworthiness of a number to European governments.

It also focused on the fact that the Chinese and Indian economies were showing more modest growth.

The US Dollar meanwhile has fallen across the board over night, falling to a three week low against the yen and sterling after being dragged down by further bond purchases talk. Last Friday’s disappointing US non-farm payrolls report is also weighing in the USD.

The tone for the day ahead seems to be more wait and see, with the dollar showing frailties and the euro zone on the edge, sterling could take the mantle and show some true signs of improving.

Markets volatile at the end of the week

Admin — Fri, 03 Dec 2010 14:27:19 +0000

The European Central Bank resisted pressure on Thursday to commit to a major bond-buying program to contain the euro zone debt crisis. ECB President Jean-Claude Trichet said the bank had decided at its monthly policy meeting to keep interest rates on hold and it extended its liquidity safety net to support vulnerable euro zone banks. He made no mention of increasing the ECB's government bond buying program, despite calls to do so after an 85 billion euro ($110.7 billion) EU-IMF rescue of Ireland failed to dispel fears that Portugal or Spain may need a bailout with Italy and Belgium in the unenviable position of who's next? During yesterday's news conference Trichet issued the following warning: "I say we are constantly alert. We are constantly looking at the situation of the markets." But referring to a bond-buying policy that the ECB started after Greece was bailed out in May, he said: "The Securities Market Program (SMP) is ongoing, I repeat -- ongoing ... I won't comment on the observations of market participants."

Suggestions before Thursday's meeting that the ECB could agree new anti-crisis measures had helped the euro stabilise and lifted stock markets, despite lingering concerns about Spain and Portugal. Adding to those concerns, Standard & Poor's warned late on Thursday that it may downgrade Greece's BB-plus credit rating in three months if it becomes clear that Europe's new mechanism to stabilise the debt crisis would favour public creditors to the detriment of private bond holders.

The failure to announce any major new action worried some economic analysts. But others' disappointment was tempered by the reports of ECB purchases of Portuguese and Irish bonds, which caused a drop in the premium that investors demand to buy these countries' debt over German benchmarks. The euro will continue to fall throughout 2011 according to a Reuters Poll announced yesterday. According to 60 strategists the battered euro will fail in the coming year to recoup its recent sharp losses as the debt crisis in the bloc rumbles on and fears over the economic stability of the multi-nation currency weighs on the mind of analysts.

Sterling slipped against a firmer euro on Thursday as traders cited the ECB buying Portuguese and Irish debt, helping to calm jitters over the euro zone periphery and lend support the ailing single currency. Traders said sterling price action continued to be driven by euro zone sovereign risk sentiment, but could easily have a reversal in fortunes if the sentiment towards the euro changes in light of numerous countries in the euro zone seemingly queuing up, cap in hand awaiting help from the IMF.

The premium investors demand to buy Portuguese and Irish debt over German benchmarks did fall Thursday with traders saying the European Central Bank had been buying the two countries' bonds.ECB President Jean-Claude Trichet earlier gave no indication the central bank was considering escalating its sovereign bond buying scheme, which initially dented the euro.

"The ECB have reportedly been buying Portuguese debt and the spreads have come in, which is why the euro has rallied against sterling and other currencies," said Adrian Schmidt, currency strategist at Lloyds Banking Group. The euro traded at 84.70 pence, close to a session high and up around 0.7 percent on the day. It had fallen to a two-month low on Wednesday of 83.34 as the euro came under broad selling pressure. Versus the dollar sterling traded down around 0.4 percent at $1.5565, having slipped to a two-month low of $1.5485 on Tuesday, but traders said focus was very much on the euro. GBP against any other currency other than euro takes a slight backseat so the side show that is GBP-USD should look to be fairly well supported around the $1.55 level, a break below this should trigger further weakness however.

Activity growth in Britain's construction sector unexpectedly picked up in November, data showed on Thursday, but it stayed near an eight-month low and may not give much of a boost to economic growth this quarter. The Markit/Chartered Institute of Purchasing and Supply construction PMI rose to 51.8 in November from 51.6 in October, confounding forecasts for a fall to 51.0. A survey on Wednesday showed British manufacturing activity accelerated to a 16-year high last month with traders now watching for Friday's release of UK November services PMI data. A Reuters poll forecasts a slight decrease to 53.0 from the previous month's reading of 53.2.

The spotlight that has been shining brightly over the Eurozone this week will shift onto the US this afternoon as the release of November's non-farm payrolls report is announced. The report is forecast to show that payroll was up 140'000 over the month, however this is not expected to make a real difference to the overall unemployment rate which is expected to remain unchanged at 9.6%. After racking up strong earnings growth in 2010, major U.S. manufacturers are expect to set the stage for a slower-paced 2011 when they meet with analysts and investors to lay out their expectations for the coming year.

Among others, General Electric, United Technologies and 3M are all set to provide 2011 forecasts shortly. Profit margins across the sector swelled this year as companies that cut costs to the bone during the brutal recession experienced a rebound in sales that helped the Standard & Poor's capital goods industry index to rise about 14%, more than twice the gains of the broader US Stock market. Analysts expect 2011 profits to rise next year, but not at the same pace as 2010. It is likely that the forecast for the dollar will be negative as the slow recovery and difficult sets of fundamental undermine the currency during these difficult times.

Sterling up as Fundementals Postive

Luke Trevail — Wed, 01 Dec 2010 10:45:54 +0000

The pound has bounced heavily from the same time last month versus the ailing euro, rising to a two month high on Tuesday after European sovereign risk concerns undermined the single currency.

This gave the red light to the already risk averse investors as sentiment once again boosted the dollar as it swelled under its safe haven status.

The rescue package for Ireland failed to dampen speculation that other bailouts may be needed in the Euro zone with the names of Spain and Portugal never far away from people thoughts. Euro has fallen to a 10 week low against the dollar.

Italy is now in the firing line along with Spain and Portugal as the market remains extremely nervous about sovereign risk and the ongoing threat to the euro over the long term.

Data in the UK show that house prices fell again November, the Nationwide building society has said.

The average price dropped by another 0.3% to leave it 0.4% higher than the same time last year.

The fall in house prices showed the forth drop in the past five months and an indication of the recent trend was highlighted in the fact that the last quarter was in total 1.3% lower than the three months previous.

The Nationwide's economist Martin Gahbauer said he expected more of the same in the coming months.

"There is little evidence to suggest that house price declines are likely to accelerate in the months ahead," he said.

"Much of the weakness in property values since the spring has been driven by a return of sellers to the market.
"However, there is little to indicate that these sellers need to achieve a sale urgently for financial or economic reasons, which means that the downward pressure on house prices is only modest," he added.

Overnight we have been knocked a little as British Consumer Confidence weakened more than expected in November as people were most downbeat about their personal finances in almost two years.

Markets have been affected slightly by the housing data, but versus the euro this in early morning trading we have seen the pound come back to test the levels that we only saw in the summer, and that was for the first time in over two years so the short term out look for sterling against euro looks good.
Traders have been buoyed higher after some stronger than expected manufacturing date in the UK, which is an indication that trading goods across the globe seems to be picking up, which will boost our exports and signal that the UK are staging a slow but steady recovery from the recession

Sterling gains as euro weakens

Admin — Thu, 25 Nov 2010 09:44:47 +0000

Sterling hovered close to a two-month high versus the sick looking euro over night, with analysts now saying the trend has further to run as the single currency was hampered by fears that Ireland’s debt crisis may spread.

As previously suggested, Portugal and increasingly Spain were seen as potentially in need to help while Ireland’s belt-tightening plan has come under fire for sticking to economic growth assumptions that are said to overly optimistic.

Speaking about the out look on Sterling’s ongoing direction Kenneth Broux, Market Economist and Lloyds Banking Group commented: “Relative to the euro, sterling should still outperform from here”.

“But against the dollar it’s not quite so clear-cut. Long sterling positioning suggests the market could be overstretched and cable could play catch-up with €-$, “he added.

Sterling has slipped to a one month low versus the dollar in yesterdays trading session. The move down was driven by declining risk appetite which prompted safe-haven demand for the US Currency.

Indeed, this may continue to be the trend if fractions continue to show with North and South Korea. Generally the start of war or at the least un-rest between two countries that have butted heads in the past will lead investors to drag there money out of higher-yielding, more riskier currencies and retreat to the safe haven of the US Dollar and Japanese Yen.

Today sees Thanksgiving in the US which prompted mass buying of the US Dollar and Euro yesterday as trading is relatively thin during a market holiday.

This morning will focus on the Bank of England as the Governor Mervyn King testifies to the Parliament’s Treasury Select Committee on the November inflation report.

King will be flanked by other Monetary Policy Committee members Paul Tucker, Spencer Dale, Adam Posen and Andrew Sentance.

As a quick warning, it’s a fair assumption that whenever the Bank of England open their mouths it proves to be detrimental for the fortunes of sterling so we will keep a keen eye on this mornings outcome.

That said, if you have sterling and you are looking for Euros you will benefit from some fantastic prices currently, the US dollar is slipping away a little and caution is advised.

Focus on Europe after Ireland Debt Crisis

Luke Trevail — Tue, 23 Nov 2010 10:27:00 +0000

The spotlight this week is shining brightly over the Irish Debt Crisis which, despite initial optimism over the bailout has now led to people looking at who is next as a domino effect of bankrupt countries could now start to take shape in Europe.

The group of countries known as the P.I.G.S which is made up of Portugal, Italy, Greece and Spain have already been subjected to some stimulus from the wider European community, remember Greece at the beginning of the Summer? And these other nations are now sitting rather uncomfortably as questions arise regarding there financial status.

Markets yesterday were not convinced that aid to Ireland would prevent other heavily indebted members of the 16-nation bloc from also seeking help.

Indeed, Canada’s finance minister said on Monday that he is pressing the European Union to address the Portuguese debt crisis quickly, although he fell short of saying the country would need a bailout.

On Monday, markets initially were supportive to the news that Ireland had requested a bailout to shore up its banks and state finances.

Optimism quickly faded however as party politics started to play a part in the affair as Ireland’s junior coalition party called for fresh elections. The county’s prime minister has however vowed to stay in power long enough to pass an austerity budget needed for the bailout package, and then call an early election.

Investors and market analysts now face two nervous weeks of political manoeuvring as the government decide what steps to take next, with not only the eyes of the nation watching, but with the EU and IMF circling like sharks ensuring that there money is being allocated correctly and looking at the bigger picture of getting there money back, with interest.

Market wise this has meant that despite the initial strength of euro versus the pound, we have seen the market continue to weaken in favour of sterling sellers to the Euro, with the 1.20 price now in our sights. Markets will remain choppy as news from Ireland and Europe in general filters through, which inevitably will cause some volatility.

A Reuters report this morning offers a stark warning for any Euro sellers however with the claims that the pound is set for gains after a solid set of fundamentals have also supported the pound as the threat that the Bank of England increasing quantitative easing has cooled.

This process, which increases the amount of cash in the system, is often currency-negative.

Strong manufacturing data yesterday helped to indicate growth as the UK continues to recover from the recession, and apart from our own involvement in the Irish bailout, to the tune of £7 billion, we are able to sit from afar and look at other peoples problems and benefit from the decline in some euro-zone economies.

Irish Economy Awaits Answers

Luke Trevail — Thu, 18 Nov 2010 10:19:19 +0000

News this week has been dominated by the Irish financial state, with the eyes of the world focussing on them to see whether they will bow to pressure and hold on to the outstretched hand of help from the Euro-zone or if they’ll go it alone.

Either one of these options will effect the currency markets both on our little island and the continent. It may now be just a matter of time before we see whether that will be positive for the fortunes of the pound or detrimental.

Yesterday a little more insight into the Irish view point on their current state was made clear as Dublin agreed to work with a European Union-IMF mission on urgent steps to shore up its shattered banking sector.

Many market experts weighed in with opinion with Joseph Capurso, strategist at Commonwealth Bank saying:

“I suspect Ireland will take some sort of aid package this week or next week and that’ll probably see the euro make up some gains in the near term.”
It would seem therefore prudent to remember that if this aid package is signed, sealed and delivered we may see the markets come back down to some lower levels for GBP-EUR buyers, from the dizzy heights of the near €1.18 that we saw earlier this week as this news story was gathering pace.

In the UK, Retail Sales figures released this morning have shown that volumes rose slightly faster than expected in October after two months of declines, with strength across most sectors.

The Office for National Statistics said sales volumes rose 0.5% last month after a downwardly revised fall of 0.5% in September; this could be largely attributed to the flood of early Christmas shoppers clogging the high street during the mid-season sales.

Separate figures showed that government borrowing came in at 9.77 billion pounds last months, broadly in line with expectations, and the PSNCR measure of borrowing was less than half the forecast at 2.431 billion pounds.

Yesterday in the UK showed some largely positive data also, which may assist us in distancing ourselves from the continued double-dip recession.

October’s better than expected UK labour market report provided underlying support for the pound.

We also saw the release of the minutes of the November Bank of England meeting, showing that the central bank remains split three ways in terms of its policy outlook.

The minutes did however reflect some improvements tin fundamentals, further suggesting that any near term policy changes, either to the Bank of England base rate or Quantitative Easing are unlikely.

As we get the news of the Irish bailout (and whether the queue for countries joining in such as Portugal, Spain and Italy increases) will update you.

Central Bank Boosts the Pound

Luke Trevail — Fri, 05 Nov 2010 10:01:31 +0000

Great news for once for US dollar buyers as the pound reaches a nine month high against the dollar.

Sterling benefitted on Thursday after the Bank of England kept interest rates and its asset-buying programme on hold following signs the UK economic recovery is on track.

The decision from the Bank’s Monetary Policy Committee contrasted with the Federal Reserve’s move on Wednesday to buy a further $600 Billion in US government bonds to tackle unemployment and stimulate growth – essentially their version of Quantitative Easing.

This contrast led to the markets gaining by nearly 2% on the day and touching, at the highest price, $1.63 versus the pound and $1.4282 against the euro.

Sterling’s good day was made better when the Bank of England decided to ignore one policy member’s opinion from last month – Adam Posen and decided to keep QE on hold.

A no-change decision that was widely expected helped sterling, and this after recent strong UK gross domestic managers’ surveys on manufacturing and services sector activity has made the outlook for the UK economy look decidedly rosier.

We have of course been here before, and often when the going is good for sterling we come across something that knocks the pound off its self-made pedestal.

Against other currencies yesterday sterling also moved well up from where we have been over the last week, with £-€ trading up at 1.1490 at the high.

Earlier data showing British house prices rose three times faster than expected in October also helped buoy sterling sentiment, though other figures showed a steep drop in UK car sales.

On the continent the European Central Bank again left its interest rates on hold at 1%, the same level it has been at since May 2009. It continued to give the impression that rates will not be increased any time soon.

Despite the fact that Q2 GDP data surprised on the upside and recent data show the underlying momentum of the recovery remains positive in the euro-zone, the ECB still sees continuing uncertainty about the economic outlook and view risks as the remaining slightly tilted to the downside.

This suggests that even though the economy has performed better than expected this year, interest rates are likely to remain low for some timer yet.

Sterling Starts the Week Positively

Luke Trevail — Tue, 02 Nov 2010 10:14:55 +0000

Sterling rose against the euro on Monday after better-than-expected UK manufacturing data boosted confidence in Britain’s economic recovery and lessened the chances of fiscal stimulus from the Bank of England.

The Markit/CIPS’s headline manufacturing Purchasing Managers Index (PMI) rose to 54.9 in October, it’s highest level since July confounding economists’ expectations for a fall to 53.1.

The UK PMI data came less than a week after GDP data revealed the economy grew at twice the rate expected in the third quarter, weakening the hand of BOE doves calling for further quantitative easing.

Under such measures, the central bank would pump more pounds into the system by purchasing more UK assets from the market, which would inevitably lead to sterling depreciation.

Currency strategist Jane Foley stated “Sterling is off the hook with respect to QE, at least for now.

“There’s an awful lot of bad news in the price of the pound and plenty of scope for sterling to appreciate next year in the news consistently surprises on the upside.”

Relying on such a thing to happen however may not be wise, as the UK and more-over the pound seems to constantly be battling with itself with regard to supporting any significant growth in the economy and subsequent strength in Sterling.

Yesterday’s rally sparked by the PMI data led to sterling climbing to 1.1550, its highest level since October 5th.

Sterling’s broad gains took it to a near yearly high of $1.6083 against the US Dollar. This before some better than expected US manufacturing data saw the rate fall away a little towards the $1.60 level.

Data this week in the UK will fall on Thursday as the Bank of England’s Monetary Policy Committee announce what the decision is on UK Interest Rates. This is also when they will announce whether an increase of Quantitative Easing takes place, which now looks less likely.

PMI Construction and services on Tuesday and Wednesday respectively may give the market some direction. Growth in the construction industry, forecast to ease marginally in October, boosted last week’s surprisingly positive GDP data which continues to drive the pound upwards.

In a stark warning to many GBP sellers, Neil Mellor from Bank of New York said “Construction played such an important role in underpinning Q3 GDP. If it comes in weak the market might start to conclude it (GDP Data) was a one-off”.

GBP improves but for how long

Luke Trevail — Thu, 28 Oct 2010 11:51:09 +0100

The week has started to take a little more shape, with sterling recovering well for a miserable start thanks mostly to the surprise UK GDP data on Tuesday.

Overnight however, Sterling fell against the euro and failed to make gains on a broadly weaker dollar as investors took the view that a rally in the pound was overdone and focus moved back to concerns over the UK's economic outlook.

The pound has been buoyed this week after stronger-than-expected third quarter UK GDP data eased market expectations that additional quantitative easing measures may be needed from the Bank of England.

Also providing support earlier in the week was rating agency S&P's revision of its UK outlook to "stable" from "negative", securing its triple-A credit rating.

But disappointing Nationwide housing data released in early European trade shifted focus back onto the downturn in the property market and the implications for future GDP readings.

British house prices fell for the third month in four in October, a survey showed on Thursday in a sign the downturn in the country's property market is becoming more entrenched.

Comments from Bank of England policymaker Adam Posen on Thursday in a newspaper interview emphasised weaknesses in the economy. Posen was the one member of the Bank's Monetary Policy Committee to vote for more quantitative easing at this month's policy meeting.
The pound did look a little weaker against the dollar prior to this morning’s house price data and the US currency appeared to shun the pattern of the last week or so and displayed some broader strength against a basket of currencies.

The dollar has retreated from the lower levels as investors trimmed bearish bets against the dollar on uncertainty over Federal Reserve stimulus.

But the pound has risen against the dollar since September on mounting speculation of more quantitative easing by the Federal Reserve.
The Wall Street Journal said on Wednesday that the Fed would unveil a programme next week of U.S. Treasury bond purchases worth a few hundred billion dollars over several months.

That would be more modest than investors' base-case scenario for an initial commitment to buy at least $500 billion in Treasury debt and gave the dollar a boost on Wednesday.

Traders said the dollar could bounce a bit further especially as hedge funds adjust their positions ahead of book closure in November and as investors reassess their holdings ahead of the Fed meeting next week and non-farm payrolls numbers, due on Nov. 5.

Market watchers are warning that sterling could come under renewed pressure if UK growth starts to falter due to recently announced austerity measures so buyers of currency may do well to lock in something at these current prices, because although we have avoided a double-dip recession we are a long way from a recovery.

Pound Falls Before GDP Announced

Luke Trevail — Tue, 26 Oct 2010 09:23:22 +0100

The week has started could also be stated as ‘the weak has started’ as sterling falls against the euro to a near 7 month low.

Weighed down by the possibility that the Bank of England may loosen monetary policy and that GDP data today could well point towards a stuttering recovery.

The pound rose against a broadly weaker dollar as a G20 agreement to shun competitive currency devaluations was viewed as a green light to resume dollar-selling on expectations that the Federal Reserve will also ease monetary policy next week – possibly leading the way for the Bank of England?

The prospect that the UK central bank may follow in the Fed’s footsteps by opting for a fresh bout of quantitative easing left sterling underperforming every currency apart from the dollar, pushing it to a five-month low versus most currencies, and worse against the euro.

The pound suffered terribly against both the Japanese Yen which reached a 20 month low and was out done by the outperforming Australian Dollar which strengthened against the weak pound to a 20 year low.

Eyes will fall on the Q3 UK GDP figure which is due out shortly and will set the tone as to whether we are to expect a double dip recession.

Many market watchers are not expecting any significant growth as many consumers tightened their belts during the summer in expectation of the coalition cuts that we saw last week.

Although the result may not plunge back into recession the dreaded tag of ‘double-dip’ is proving difficult to shake off and we will await the figure before drawing any conclusions as to the picture we are to expect in the next few months.

More follow after the 09.30 figure.

Pound Suffers a Week of Weakness

Luke Trevail — Fri, 22 Oct 2010 09:37:48 +0100

Sterling looks to end the week with a little more optimism for the future, but with sack-full’s of economic data weighing on the UK’s chances of growing from recession I have little in the way of confidence for the hopes of the ailing pound.

GBP – EUR hit a near 7 month low on Thursday after weak UK retail sales data increased concerns that Bank of England policy makers may opt to inject more stimulus into the faltering economy.

The resilience that sterling has shown since the decline of Northern Rock in September 2007 (where does the time go?), may now not have much weight behind it as it continues to get punched from all angles, retail sales being one such example.

The report showed that sales fell unexpectedly for the second month in a row in September, lending weight to the view that they UK economic recovery has peaked, if it ever started in the first place.

This data further dented the pound, which has come under pressure this week since Wednesday’s BoE minutes which showed that Adam Posen called for a resumption of stimulus through quantitative easing.

Prices of sterling have continued to slide down versus the euro, as low as 1.1203 yesterday and with many analysts predicting a further decline, as the pound weakens and the ever ready euro looks to strengthen we may be set for rates well below the 1.10 price.

The euro has benefitted from US$ investors taking money and looking for an alternative safe haven. Despite the riots on the streets of France, and other economic frailties the euro zone is showing that there is some proof that safety in number seems to work. This may now provide the euro the stepping stone towards continued strength, and ultimately recovery?

Markets across the globe will remain turn cautious going into the weekend, with tensions building as the finance ministers for the G20 group gather in South Korea for meetings over today and tomorrow.

There is talk that some sort of currency agreement might be thrashed out at meetings. However, this seems unlikely, which could leave the dollar under renewed pressure going into next week.

Aside from the German IFO index for October, there are no data releases of note from the US, UK or Euro zone today.

With plenty of doom, it may not be wise for any sterling sellers to look at the market through rose-tinted spectacles, and secure any immediate transfer soon.

If however you are looking to buy into the pound, you can currently benefit from some fantastic prices.

Sterling Hit from Every Direction as BoE Weigh In

Admin — Thu, 21 Oct 2010 10:30:35 +0100

The currency markets have been shaken from the outcome of not only the spending review that was announced yesterday but also the Bank of England’s three way split over policy regarding Quantitative Easing.

Seven members voted for no change to interest rates and no additional stimulus spending, while one person wanted to see rates rise.

The ninth member, Adam Posen, voted to see QE, the bank’s main stimulus measure restart which would involve the printing of money which would be pumped into the economy to try and boost the recovery, yet on the other hand load national debt for generations to come.

The minutes of the policy meeting held earlier this month showed that Mr Posen called for a further £50bn to be put into the QE programme, while Andrew Sentence voted for a rise in interest rates for a fifth month in a row.

The minutes offer some backing to the sentiment behind Bank of England Governor Mervyn King’s statement on Tuesday which suggested that QE may soon be necessary as the economy is ‘barely growing at all’.

This is the first call for additional policy stimulus since November 2009 and while the majority thought that the balance of risks has not changed enough to warrant immediate action, some felt that the chances that more stimulus would be needed had increased in recent months.

Looking at currency movement, Sterling came under pressure versus the dollar and the euro over yesterday’s trading session and overnight as the markets reacted to the tone from the Bank of England and the release of dome ‘heavy handed’ spending cuts which Chancellor George Osborne has defended today.

Speaking with the BBC, Osborne claimed that he made a conscious decision to “curb the rise on the benefits bill” so that investment in schools and the NHS can continue.

“That has involved some hard choices, but I think they are fair choices. We have got to put the welfare state on a sustainable footing and we have got to reform it so that it always pays to work” he continued.

Markets seemed so on edge expecting the budget cuts to be so detrimental to the fortunes of sterling that the response was relatively muted in the aftermath of Osborne’s announcement. The fall-out may however take weeks to be fully appreciated.

Fundamental news this morning has further weighed onto the pressures on the pound with Retail Sales unexpentantly dropping in September for a second month as consumers bracing for the government’s budget squeeze curbed spending on the items from clothing to fuel.

Sales fell 0.2% from August, when they declined 0.7%, the Office for National Statistics said today in London. Economists predicted a 0.3% increase, according to the median of 25 forecasts in a Bloomberg News survey. On the year sales rose 0.5%, the least since January.

The pound has moved down to 1.1252 versus the euro and stood relatively firm against the US Dollar, which has it’s own problems – more of which should become clear in the next week or so at $1.5730.

UK set for Austerity Measures Announcement

Luke Trevail — Wed, 20 Oct 2010 09:41:43 +0100

Good Morning. Wednesday 20th October 2010 has long been on a pedestal for market watchers as we brace ourselves for the start of the biggest cuts in public spending that the UK has seen since World War Two.

Sterling starts the day under pressure following yesterday’s CBI data and with both the spending review and Bank of England minutes set to be announced this morning, things look bleak.

Valentin Marinov, currency strategist at Citibank said, “Investors remain cautious about the impact of spending cuts on the UK economy, and indications that the government wants to postpone some fiscal austerity measures could prompt more unease about the near-term outlook for the economy.”

The headlines across some internet sites on Monday stating ‘Welcome to the Double-dip’, indicating that the UK now faces another tough year ahead could well hold some ominous truth, rather than a tongue-in-cheek warning.

Markets have reacted already since the beginning of the week with a glut of fundamental data releases further compounding sterling’s woes. GBP-USD fell to a 3 week low despite the dollar’s apparent weakness and the pound continues to close the day lower and lower against the majors, and is currently the worst price for euro buyers since May.

We will have more on the spending review throughout the day.

For any one who’s looking for a more positive slant on the economy may want to look away now.

Mervyn King, not known as the greatest advocate of positivity towards the ailing economic picture that he and his Bank of England pals have painted has once again opened his mouth, providing writers like me many quotes to excite, inspire and motivate. Or not.

Speaking to an audience in the West Midlands last night King warned that the UK faces an “unpleasant, sober decade ahead”.

“The next decade will not be nice. History suggests that after a financial crisis the hangover lasts for a while” he added. Following a warning that there would not be a speedy recovery as the re-balancing of the economy would take some time King then went onto to say that the economy was still “barely growing at all” which lends some support to the double-dip recession now being a real threat.

The Bank of England minutes have just announced that there was a 3 way split on the vote regarding quantitative easing, with 7 voting to keep things on hold both in terms of interest rates and QE, one voting increase QE and the other voting to see a rise in interest rates. A split in voting essentially means that the policy makers are not singing off the same hymn sheet, which shows some uncertainty regarding the economic outlook amongst the people who frankly, should know.

Buyers of currency who have sterling in hand would be well placed to try and secure something on these markets soon, as the spending cuts along with the glut of negative UK data seem only likely to see sterling heading lower, towards the levels that we saw in 2008, during the decline into the last recession.

UK Awaits Wednesday as US Dollar Rebounds

Luke Trevail — Mon, 18 Oct 2010 10:25:31 +0100

Focus for this week falls firmly on Wednesday as the coalition plans to cut average spending in government departments by a quarter as it tackles a record budget deficit in the UK.

The comprehensive spending review will unveil that the coalition plans to cut departmental budgets by £83 billion and achieve the rest of the tightening through tax increases such as the VAT 2.5% hike in January.

Measures that we already know about are the proposed scrapping of child benefit from 2013 for households where either parents earn over £44’000 per year.

This in addition to the apparent 25% cut over the next 4 years in certain departments of the NHS will no doubt hurt the already weakened pound and further hinder any chances of the forex markets for sterling sellers reaching the dizzy heights that we enjoyed during the summer.

Looking at the markets, early trading over night Sunday into the early session in Europe has seen the dollar stabilise against a basket of currencies and rise against a 10 month low versus the Euro and Sterling after technical indicators pointed to the possibility of a further short-covering rebound.

The dollar’s rise coincided with a rise in the longer-term U.S. Treasury yields on Friday as the yield curve steepened after comments from Federal Reserve Chairman Ben Bernanke, as investors bet the Fed would be successful in generating more inflation.

Traders covering short positions benefitted after the dollar had been heavily sold following further talk of Quantitative Easing which now looks like it has been pretty much priced in to the market.

A flood of comments from central bankers over the weekend has also appeared to have clouded the outlook for the forex markets, with a number of European officials including Jean-Claude Trichet, calling fro greater exchange rate flexibility.

Overall however, sentiment remains against the US Dollar and there is a risk that it could come under renewed pressure if data releases over the course of this week disappoint.

Reports to look out for include September’s industrial production as well as housing starts and permits for the same month. With US monetary policy a key focus right now, markets will also be paying particularly close attention this Wednesday’s release of the Fed’s latest beige book.

This document will form the basis for discussion at the early November FOMC meeting when markets will await whether quantitative easing is in fact another option.

Sterling has started the week positively compared to Friday’s prices against the euro, pushing close to the 1.15 level after a sharp 3.1% rise in the UK Rightmove house price index for October, which is in contrast to a number of recent reports showing a decline in house prices in the UK.

A boost in sterling may well be short lived of course with Wednesday’s announcement firmly in focus, and depending on the reaction the budget cuts we may well see medium to longer term outlook for the pound take shape later this week.

We will of course keep you update with the latest news as we get it throughout the day.

US Dollar Declines to New Lows

Admin — Thu, 14 Oct 2010 09:52:14 +0100

US Dollar dominates the markets this morning as we see the supposed ‘most important currency in the world’ drop to its lowest level against a basket of currencies as expectations of U.S. increasing their easing measures kept investors piling on bets against the greenback.

The Australian dollar was one of the greatest beneficiaries as it boasts the highest yield among major currencies and soared to a 28 year peak versus USD at 0.9983 following the investors mass dumping of the dollar as the Federal Reserve look to start the money printing, possibly as soon as next month.

Euro jumped over 1% overnight and broke not just above the eight month high of $1.40 but continued this morning to above $1.41. This move caught some market watchers who have been expecting more consolidation by surprise as it triggered stops at just above $1.40, which led to continued dollar weakness.

Downside pressure intensified after Singapore announces that they are widening the trading bands of its currency, allowing it to hit a new record high. The monetary authority also announced that it would maintain the modest and gradual appreciation of the currency.

Sterling continues to be the one currency that is struggling to break into higher ground against most currencies, as we continue to see drops against the majors.

This weakness in the UK economy follows increasing speculation the Bank of England will also follow the Fed and introduce fresh quantitative easing measures. When they sneeze, we catch a cold springs to mind!

Labour market data yesterday showed that in the UK the number of people claiming unemployment benefits rose in September for a second consecutive month. This led to Sterling hitting a five month low against the euro.

The pound has however benefitted largely from the decline of the dollar, with after much trying over the last few days the level of $1.60 has been broken during early morning trading Thursday. Buyers of Cable are now able to secure prices towards the very best we have seen in nearly 18 months.

Events to watch today include the US trade report for August, which is expected to show a widening in the deficit. This could further weigh on the dollar. US PPI data for September meanwhile are not expected to raise any concerns in terms of price pressures.

Sterling Suffers Following Further QE Speculation

Luke Trevail — Tue, 12 Oct 2010 12:06:09 +0100

The pound has started this morning with the words of Bank of England policy maker David Miles ringing in it’s ears after he has stated that the central bank may yet come to use further quantitative easing.

Sterling hit a one week low as Miles said that QE remained a “potentially powerful tool”, although he continued stating that he was very uncertain about what the growth and inflation expectations are in the UK.

The pound fell almost a cent against the dollar, and lost most of the gains that we saw overnight against the Euro.

These comments came after Sterling started it’s week with plenty to look out for as an onslaught of fundamentals were thrown it’s way which is set to test the resilience of the pound looks set to be tested once more.

The news has been largely underwhelming for the medium term outlook with overnight BRC retail sales for September disappointing somewhat, showing sales growth slowing, led by a drop in the demand for big ticket items.

Meanwhile the BCC quarterly trends survey showed the economy slowing sharply in Q3 with the RICS housing survey also disappointing.

Respite for the UK came in the form of UK Consumer Prices Index (CPI) as inflation remained unchanged at 3.1% in September according to the Office for National Statistics. Analysts said that a higher-than-expected CPI figure would have dampened expectations that the Bank of England would opt for more quantitative easing.

The Retail Prices Index, which includes a higher proportion of housing costs, fell back slightly to 4.6%. September's figure is of key importance to claimants as it sets the rate at which benefits change in April.
Most benefits are now linked to the CPI and will rise by 3.1%, but pensions will increase by the higher 4.6% RPI. RPI - which factors in a greater chunk of the cost of housing - is also important for wage negotiations.

The inflation linking for welfare payments was changed in the Budget from RPI, which is generally higher than CPI and should therefore lead to savings for the government. The higher RPI benchmark for pensions will not apply until next April. The ONS said there were both significant upward and downward pressures on inflation in September.

Clothing and footwear prices saw a record rise, but airfares fell by 27.8% after rising by a record 16% in August. Although the CPI figure remains above the 2% target - and has been there for 10 months in a row - the Bank of England expects that to be temporary and interest rates are likely to remain at their record low levels.

Some business groups are calling for monetary policy to become looser, arguing that the Bank may have to pump more money into the economy by way of another round of quantitative easing.

Sterling will look to tomorrow with UK unemployment data being released which may provide some positive direction coming into the market place.